Yi Gang, former head of the People's Bank of China, said that now the key task for the Chinese government is to combat deflationary pressure, and this problem can be solved by stimulating domestic demand. He also added that if the government can improve the situation in the real estate market, as well as deal with the debt problem of local authorities, this will have a positive impact on public confidence.
“At this stage, an active fiscal policy and an adaptive monetary policy are important,” Yi Gang said.
In contrast to high inflation in the United States and Europe, consumer inflation in China, according to the latest data, was only 0.5% per annum in July, as domestic demand remains weak. Monthly, the CPI rose by 0.5%, recording the first gain since April. The core CPI, deducting food and energy costs, increased 0.4% y/y, the least in 6 months. The August CPI data will be published on Monday, September 9th. Consensus estimates suggest that consumer price growth accelerated to 0.7% per annum.
Yi Gang said he expected the CPI to “converge above zero by the end of the year,” while the producer price index would likely reach zero, after negative prints in recent months.