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When analyzing CPI figures, people should pay more attention to the PPI, because this index is decreasing faster than the CPI, said Li Chang'an, associate professor at School of Public Administration of the University of International Business and Economics. In December 2011 the PPI rose 1.7 percent year on year and decreased 0.3 percent than the previous month. This indicates the transmission of price hikes has been significantly weakened.
"Temporarily alleviated CPI growth is related to a slowdown of the Chinese economy, but the inflation that does exist in the Chinese economy has remained relatively unchanged," said Zheng Chaoyu, professor at the School of Economics of Renmin University of China. "A downturn of the CPI for several months doesn't mean the turning point for inflation has come."
He Qiang, Director of the Institute of Securities and Futures of the Central University of Finance and Economics, said everyone should further observe the price level. Prices of farm products are easily influenced by winter weather and are susceptible to increases around holidays. In the middle and long term, factors pushing up price hikes still exist, such as rising labor and resource costs as well as limited availability of land as urbanization sweeps the country.
Although the year-on-year increase of the CPI in December 2011 dropped to 4.1 percent, the CPI for 2011 rose by 5.4 percent, much higher than the goal of 4 percent set by the government at the outset of the year.
"Because of this, we can't really say that we've solved the inflation problem," He said.
Tan Yaling, Director of the China Foreign Exchange Investment Research Institute, said although CPI growth is dropping, people should not think inflation has been controlled. First, most people don't believe prices are dropping. Second, the root cause of this round of inflation is speculation and now both investment and speculation in the market are declining.
Wang Tongsan, Director of the Institute of Quantitative and Technical Economics, said quantitative easing, cost inflation and the large amount of currency in circulation increase the likelihood that inflation will pick up in 2012. Although the central bank adopted a prudent monetary policy in 2011, it only controlled the rapid increase of newly added money supply, with the big monetary stock still in the market. This will impose some pressure to the price level and need some time to be alleviated.
Sun Lijian, Deputy Director of the School of Economics of Fudan University, worried once the European debt crisis becomes stable and liquidity panics disappear, the currencies put into circulation to remedy the European debt crisis will push up international commodities prices and cause inflation to return.
As CPI growth rates dropped in late 2011, argument has arisen about whether the monetary policy should be loosened this year. Most experts think in 2012 it is not suitable to completely change the prudent monetary policy.
Wei Jie, a professor at the School of Economics and Management of Tsinghua University, said inflation pressure has determined that the monetary policy in 2012 should be prudent, but considering the risks of slowdown in economic growth in 2012, the central bank may lower the reserve requirement ratio several times.
The Bank of Communications' report also said when inflation pressure alleviates this year, the economic growth will also slow down, the monetary policy won't be further tightened. But considering the mid- and long-term inflation pressure and possibility of an economic "hard landing," the monetary policy is not likely to be loosened.
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