Worries about inflation in China have been overhyped

CHINA HAS a reputation for pursuing growth at all costs. It has tolerated grey skies, red ink, displaced farmers and punishing work hours. But the one thing China will not sacrifice is price stability. China’s record in containing price pressure is impressive for an emerging economy. Consumer-price inflation has averaged only 2.3% over the past 20 years.

After Russia invaded Ukraine in February, China began to feel some of the inflationary pressure that has afflicted economies elsewhere (see chart). Inflation rose from 0.9% in February to 2.7% in July, close to the government’s ceiling of 3%. Fuel for vehicles rose by 14% in the space of five months, and pork prices jumped by over 25% in July alone, as farmers hoarded hogs in expectation of even higher prices to come. But new figures released on September 9th show that China’s inflation scare seems to be ending before it began. Consumer-price inflation fell to 2.5% in August. Farmers slaughtered pigs at a more normal pace. And although fuel prices are much higher than they were last year, they are lower than they were a month ago.

What does that mean for the rest of the world? It was once fashionable to accuse China of exporting deflation, thanks to its cheap currency and cheap labour. But this year the worry has been the opposite. To quash outbreaks of covid-19, the government has repeatedly imposed costly lockdowns on export hubs like Shenzhen and Shanghai. This led to fears that China’s forever war against covid would make it harder for the rest of the world to win its own battle against inflation. In its monetary-policy statement in June 2022, America’s Federal Reserve said that covid-related lockdowns in China were likely to “exacerbate supply-chain disruptions” and affect the inflation outlook.