China has ‘room’ for imported inflation, but economic risks rising: PBOC adviser

China has sufficient leeway to cope with imported inflationary shocks from Middle East instability, a monetary-policy adviser to the People’s Bank of China said, but the country must balance those pressures with economic-growth risks.

Huang Yiping, a member of the PBOC’s Monetary Policy Committee, said that China was already experiencing upwards pressure on prices.

But China’s consumer price index (CPI), a key gauge of inflation, has remained below its official target of 2 per cent in recent years, he noted, speaking at a media briefing in Beijing on Tuesday.

“Relatively, we have a certain degree of room to absorb or accept imported inflationary pressures,” said Huang, who is also the dean of Peking University’s National School of Development, though he noted that the scale of imported inflationary pressure remains contingent on the length and severity of the conflict.

“What I am most worried about is that the rise in energy prices will hit companies’ profitability,” Huang added. “Such a squeeze would be very detrimental to the real economy.”

Economies around the world are bracing for an inflationary shock. The US-Israel conflict with Iran – now in its fifth week – has not only sent global energy prices soaring, but has also driven up costs for key industrial inputs, including chemicals and metals.

Meanwhile, China has been grappling with deflationary pressures in recent years, amid weak domestic demand and entrenched oversupply that have weighed on prices.

South China Morning Post