What is Inflationary Pressure?

Inflationary pressure is a term used to describe a situation in which the price of goods and services increases at a higher rate than wages therefore causing financial strain. This in the end affects the public’s way of spending on essential goods and services.

potential inflationary pressure of China is high

By Lu Na July 15, 2013
Although China’s Consumer Price Index (CPI) increased by only 2.6 percent in 2012, it can still face inflationary pressure in the coming years, according to the China Economic Growth Report 2013 released by China Center for National Accounting and Economic Growth of Peking University, on Sunday.Under the complex worldwide economic conditions, China’s CPI will change from a structural price increase to a gross inflation.Based on three aspects, the increase of the CPI in 2013 may be a rebound compared to2012, according to the report. Several countries adopted a quantitative easing monetary policy in 2013, which will most likely lead to higher prices for imported products. China will face a stronger pressure due to inflation.The rising labor costs and capital costs will result in a cost-push inflation. The price of mill will also strongly increase, following an increase in the price of raw materials.The vice president of Peking University Liu Wei said that China is facing a strong inflationary pressure because of a large money supply and a slow currency circulation.

“A large amount of money has been put into the virtual economy rather than the real economy, which led to lots of derivative products,” said Liu.”We can’t blame a slow economic growth for less money. The solution is to improve the speed of the currency circulation instead of increasing monetary aggregates.”

Liu said that the central government proposed to slow down the economic growth with macroeconomic regulations because China is currently facing inflation and a decreasing GDP. But the local governments hoped to ensure economic growth. It is not only an economic problem, but also a beneficial game for all parties.

Liu said that the reform should focus on three aspects; starting with the marketization of production factors, especially land. The property rights of rural and urban lands should be clear. Besides, negotiation mechanisms in the labor market have to be perfected. The reform of state-owned monopolies, changes in the administration and equal competition among private enterprises have to be ensured. Another goal is the perfection of the price order.

The China Center for National Accounting and Economic Growth was co-established by the National Bureau of Statistics (NBS) and the School of Economics of Peking University. It has been releasing the annual China Economic Growth Report since 2004. Unlike other economic growth reports, it focuses on long-term economic problems.