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Good for consumption

(China Daily)
Updated: 2009-02-11 07:45

Slowing price gains in January certainly justify concern over deflation risks that will add to China's difficulties to maintain stable and relative fast economic growth this year. But low inflation can also help at a moment when the country is trying hard to boost domestic consumption.

Policymakers should seize this chance of low inflation to unleash the potential of Chinese consumers by promptly bringing in place all needed measures to improve domestic consumption environment.

Latest statistics show that China's consumer prices grew only 1 percent in January, the slowest pace in 30 months, while producer prices accelerated their fall by 1.1 percent in December to 3.3 percent last month.

Given the gloomy global growth outlook and the huge challenges China faces, such cooled inflation understandably sparked warnings about deflation in the coming months.

The possibility that China's consumer inflation may dip into negative territory in early 2009 is real due to the high base a year ago.

Surging food and commodity prices at home and abroad as well as severe winter snowstorms that disrupted agricultural and industrial production had once sent the country's inflation to an 11-year high of 8.7 percent last February. Yet, with the collapse of oil prices later last year as a result of deepened global financial crisis and economic downturn, China has so successfully reined in price hikes that it needs to caution against deflation now.

Since slowing consumer and producer inflation can discourage enterprises from expanding investment, some people are suggesting interest rate cuts to reflate the economy.

Policymakers need to pay close attention to slowing inflation, but they should refrain from boosting prices to sustain economic growth.

On the one hand, a lesson from the drastic fluctuation of commodity prices last year is that the country must guard against a vehement surge of commodities prices that could come any time. If the Chinese economy rebounds as expected later this year, commodities will definitely not remain as cheap as they are now.

On the other hand and more importantly, low inflation, or price stability, is crucial to sustained consumption boom.

It was estimated that retail sales climbed to 290 billion yuan ($42.5 billion) during the Spring Festival holidays in later January, up 13.8 percent from the equivalent holiday week in 2008.

Though that sort of retail growth looks less impressive than the 21.6-percent growth of retail sales in 2008, lower inflation in January indicates that China's consumption growth has held quite well in the face of the global recession.

The country has been determined to boost consumption to sustain growth. In addition to all the government efforts to facilitate consumption growth, low inflation should also be made a policy goal to protect consumers' welfare.

(China Daily 02/11/2009 page8)