China: The Dragon of Inflation

Chinese leaders have recently stressed the need to keep inflation under control, with the economy expected to grow at more than 10 percent in 2010 and the banking system continuing to support government stimulus policy with massive lending. This is in spite of the fact that China has experienced relatively low inflation rates since the late 1990s, with the annual average change in its consumer price index (CPI) rarely rising above 5 percent. The modern Chinese economy actually has a systemic inclination toward deflation. In its first few decades emerging from a command economy, China did experience the inflation problems common to developing countries. But with across-the-board inflation not posing a significant problem under China's current economic structure, the concern voiced by Beijing today actually has more to do with inflation of prices in a few key areas that pose a threat to social stability, including energy, real estate and especially food.