Chinese central bank adviser Fan Gang, China’s Director of the National Economic Research Institute’s Reform Foundation, is of the stated view that stimulus policies being implemented around the world could lead to inflation. He softened this by saying central banks should be in a position to withdraw liquidity when it becomes necessary.
Fan is an academic adviser on the People’s Bank of China’s monetary policy committee and said at a forum in Beijing that there is no such thing as the perfect stimulus plan. In saying that he was implying that there was an inevitable downside.
His comments come as stimulus programs around the world begin to makes themselves felt, particularly in China. This has prompted policymakers to start looking at how to address long-term risks rather than seek short-term solutions.
In its 2009 annual stability report issued late June, the PBOC warned of possible global price rises after market confidence recovers. It said that excessive money supply and increasing fiscal deficits in some economies will likely create inflationary pressures in the longer run. That contrasts with the same report stating that China is facing deflationary pressures in the short term.
China’s consumer price index fell 1.4% in May from a year earlier, the fourth straight month of decline, while its producer price index dropped 7.2% in May from a year earlier, falling for the sixth month in a row.
Wall Street Journal Online reported that in explaining the link between global and domestic inflation, the Chinese Academy of Social Sciences economist Li Yang said any inflationary pressure in China would likely come from rising global commodities prices.