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CONFIDENTIAL
Introduction
China's Inflation
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CRC INF 4/93
(CEC 2/93)
China's
inflation
had largely been on an uptrend
since the economy started to recover from its earlier
retrenchment in 1991.
Measured in terms of the General Retail Price Index(1), the inflation rate was less than
3% in 1991 but accelerated rather significantly to around
7% in the fourth quarter of 1992. In the first quarter of
1993, it reached 8.6%. Coupled with other signs of economic overheating, this led to greater worries that if
allowed to continue, the trend could develop into a
situation similar to that in the late 1980s when the inflation rate was well in the double-digit range.
2.
The purpose of this paper is to analyse China's current inflation and its causes, and to assess the likely government response, drawing comparison with the previous
experience in 1988 and 1989 where appropriate. It also draws some possible implications for the Hong Kong, economy.
Recent inflation trend
3.
China's overall
inflation rate in 1992,
as
5.4%.
indicated by the increase in its General Retail Price
Index, was
This represented a significant acceleration from the corresponding rates in the preceding two years, at 2.1% and 2.9% respectively. The accelerating
trend was becoming more evident towards the end of 1992:
prices of consumer
(1) The General Retail Price Index is computed as a
weighted average of the retail goods and agricultural products, prices of services.
CONFIDENTIAL
but excluding the
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