Control inflation expectation

Inflation is a worrisome problem for the Chinese economy in 2013 according to the Davos World Economy Forum held in Switzerland. Controlling expectations of inflation is more important than controlling inflation itself, says an article of the 21st Century Business Herald. Excerpts:

China's inflationary pressure has rebounded for two months. If China maintains its economic growth, it has to accommodate an expected inflation rate of 3 percent to 3.5 percent.

But the expectation of inflation is running high as most local governments decide to boost economic growth through large-scale investment. And the popular concept of urbanization gives local governments a reliable excuse to increase their investments.

The rebound of housing prices in many cities late last year signals that a new round of inflation is expected on the horizon.

Although expectations of inflation are different from inflation, the expectation, if not controlled, will aggravate some social problems. The exorbitant housing price is just one case in point.

Transforming the economic growth model and upgrading the real economy's internal structure are the most important jobs to relieve inflation pressure, despite a possible dip in economic growth. One example is that the investment for the manufacturing industry continues to decline in the fourth quarter of 2012 and the growth of private capital investment in fixed assets is slowing. So the government should inject more funds into the backbone manufacturing industry and actively lead private capital to invest in the real economy.

Meanwhile, the government should not release its control of housing prices. Otherwise, the government is sending a clear signal it is rescuing the Chinese economy by raising housing and land prices. The government should continue its strict control of housing prices and keep the stability of its currency policies and adjust social financing structure and credit scales according to the real needs of economic structure transformation.

In fact, the reform of social welfare systems is the best way for China to dilute its inflationary pressure and expectations. Investment in building a social security net nationwide will not cause inflation but yield positive social effects.