China’s inflation rates over the period of 1978-2007 are filled with numerous
fluctuations. In 1994, there is an abrupt rise in the inflation rate to a
all-time high of 24.1%. During that period of time, there is presence of severe
flooding (leading to increase in food prices), wage-price spiral and structural
factors which caused the towering inflation rates. This has resulted in the
government taking drastic actions to tighten monetary policy sharply, causing a
dramatic fall in the inflation rates to -0.8% in 1998. Subsequently, there is a
rebound in the inflation rates to 4.8% in 2007. Thus, it will be expected that
the Chinese authorities will continue to stick to tight monetary policy and
interest rates will rise to curb the amid inflation. One of the challenges faced
by China is to juggle between curbing inflation and enhancing the current
dwindling exports. This would pose a macroeconomic dilemma for the government.
Below is the chart of China inflation rate and trends from year 1978 - 2011:
China consumer, retail and industrial price indices
All three consumer, retail and industrial prices have similar trend. The
consumer price index increased from 98.6 percentage points in 1999 to
104.8 percentage points in 2007. Retail price index rose from 97.0
percentage points in 1999 to 103.8 percentage points in 2007 while
industrial product price index increased from 97.6 percentage points in
1999 to 103.1 percentage points in 2007.
Below is the chart of China consumer price indices, retail price index
and industrial price indices from year 1985- 2011:
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