ChinaÆs consumer price inflation moderated to 7.7% year-on-year in May versus 8.5% in April, and the core rate slowed to 1.7% from 1.8% in April. The big gap between the headline and core inflation rate amounting to six full percentage points suggests that rising inflation so far has been a relative price shock, not a rise in the general price level Chart 1.
However, inflation expectations are creeping up, albeit slowly, underscoring the need for China to ônormaliseö its super-stimulative monetary policy. Policy and growth uncertainties will continue to haunt ChinaÆs financial markets and create sharp volatility if the authorities do not act decisively.
Inflation risk still contained
The recent Sichuan earthquake may boost...
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