Normalize monetary policy

    The recent rise in China's inflation has grabbed the attention of the public and policymakers alike. Consumer price inflation rose to 4.4 percent in October and a further increase is expected. This is higher than we are used to in China, although it is modest in an emerging market perspective. To determine the best policy response to the rise in inflation it is important to know its cause and how much inflation we should expect in the coming 12 months. It is also good to decide what an acceptable rate of inflation is for a country like China.
    So far, the rise in inflation is because of higher food prices. The food component¹ of the consumer pice index in October was up 10.1 percent year-on-year, contributing two-thirds of overall inflation, while non-food prices were up 1.6 percent on this basis. In looking for the cause of the higher food prices, monetarist explanations are common.
    After the massive monetary² expansion since the end of 2008 there is a lot of liquidity³ sloshing around, potentially putting upward pressure on prices, especially asset prices. In this setting, there are reports that speculative⁴ activity has driven up prices of several food products.
    It is also true that in the long run sustained monetary expansion drives up inflation. However, the link from money to inflation is more indirect and complex than simplistic monetarist interpretations⁵ suggest and, in the meantime, inflation is basically determined⁶ on the markets for goods and services.
    Several food markets have been buffeted⁷ by domestic supply shocks. In particular, vegetable prices, which have seen the largest price rises, have been hit by bad weather and natural disasters. Recent hikes in international food prices have added pressure. China's rice and wheat prices do not closely follow international prices, since they are managed by policymakers.
    However, prices of corn and soybeans in China follow international prices fairly closely, and higher prices for these products have helped raise meat and egg prices. Housing-related costs have also contributed. However, prices other than those of food and housing remain contained - in October, they were up 0.8 percent year-on-year.
    Inflation is unlikely to escalate⁸ but expectations matter and there are risks. Food prices are unlikely to continue to rise at the recent pace. Domestically, the supply side factors driving up prices are considered in large part temporary. Internationally, after the hefty increases in prices of raw commodities such as food and many industrial commodities since early summer, mainstream⁹ forecasters do not expect them to continue to increase at this pace.
    More generally, despite further quantitative¹⁰ easing in the US, global inflation prospects¹¹ are generally considered modest, largely because of substantial spare capacity in many markets globally. Indeed, the US just registered the lowest rate of core inflation since records began in 1957.
    There is some risk that the higher food prices will spill over into wages and other prices. This risk is manageable but it requires policy attention. People typically resist real wage declines if they can. Thus, large rises in prices of food or energy are often followed by wage hikes. This can set in motion a wage-price spiral, especially in a low productivity growth environment.
    In China, price shocks tend to be more easily absorbed than in many other countries because of robust¹² productivity and wage growth, and core inflation is low to start with because of the rapid productivity growth in industry. Nonetheless, with inflation expectations having risen substantially and the labor¹³ market less loose than it used to be, macroeconomic policy will need to play an important role in limiting the spillover of food prices into other prices and wages.
    The risks of inflation and the need to manage inflation expectations strengthen the case for normalizing the monetary stance. Indeed, with little spare capacity in China's economy, respectable growth prospects, and concerns about too rapid housing price increases, this normalization¹⁴ will need to be a central objective of macroeconomic policy.
    Thus, after the spectacular increase in monetary aggregates¹⁵ since the end of 2008, monetary growth will before long need to come down to rates broadly similar to nominal¹⁶ growth.
    Moreover, relying more on interest rates and less on quantitative instruments such as credit controls would help reduce the underlying¹⁷ pressures on asset prices and reduce distortions. In October, People's Bank of China raised benchmark interest rates by 25 basis points. But they are still much lower than before the crisis and they will have to go up more.
    Concerns about the impact of financial capital inflows are overdone¹⁸ and are no good reason not to increase interest rates. Thanks to China's largely effective capital controls, the amount of net financial inflows (called "hot money" in China) is actually very low compared to domestic credit creation. Also, the overwhelming majority of the increase in foreign reserves is not from net financial capital flows but from current account surpluses and net foreign direct investment.
    However, the inflation outlook does not seem problematic enough to warrant surpressing overall inflation by administrative¹⁹ measures or postponing²⁰ needed price adjustments. High inflation is distortive and not helpful. However, in rapidly growing countries like China, relative prices need to change to facilitate changes in the economic structure. In most emerging markets moderate inflation - of 4-5 percent - is not seen as a major problem.
    Constraining²¹ inflation to be very low could hinder helpful relative price changes. For instance, China needs to increase administrative prices for resources and utilities - especially energy and water - to help adjust the structure of the economy. And, higher prices for agricultural products and higher migrant wages can help boost rural incomes and reduce urban-rural inequality, thus helping²² to improve the primary income distribution.
    It would be really unfortunate if such desirable developments were suppressed because of concerns about moderate inflation. Thus, somewhat higher tolerance²³ to modest inflation could help bring about some of the structural²⁴ reform and change that the government is aiming for.
    The author is a senior economist²⁵ at World Bank Office in Beijing.

1 component   

n.组成部分，成分，元件；adj.组成的，合成的

参考例句：

• Each component is carefully checked before assembly.每个零件在装配前都经过仔细检查。
• Blade and handle are the component parts of a knife.刀身和刀柄是一把刀的组成部分。

2 monetary   

adj.货币的，钱的；通货的；金融的；财政的

参考例句：

• The monetary system of some countries used to be based on gold.过去有些国家的货币制度是金本位制的。
• Education in the wilderness is not a matter of monetary means.荒凉地区的教育不是钱财问题。

3 liquidity   

n.流动性，偿债能力，流动资产

参考例句：

• The bank has progressively increased its liquidity.银行逐渐地增加其流动资产。
• The demand for and the supply of credit is closely linked to changes in liquidity.信用的供求和流动资金的变化有密切关系。

4 speculative   

adj.思索性的，暝想性的，推理的

参考例句：

• Much of our information is speculative.我们的许多信息是带推测性的。
• The report is highly speculative and should be ignored.那个报道推测的成分很大，不应理会。

5 interpretations   

n.解释( interpretation的名词复数 )；表演；演绎；理解

参考例句：

• This passage is open to a variety of interpretations. 这篇文章可以有各种不同的解释。 来自《简明英汉词典》
• The involved and abstruse passage makes several interpretations possible. 这段艰涩的文字可以作出好几种解释。 来自《现代汉英综合大词典》

6 determined   

adj.坚定的；有决心的

参考例句：

• I have determined on going to Tibet after graduation.我已决定毕业后去西藏。
• He determined to view the rooms behind the office.他决定查看一下办公室后面的房间。

7 buffeted   

反复敲打( buffet的过去式和过去分词 )； 连续猛击； 打来打去； 推来搡去

参考例句：

• to be buffeted by the wind 被风吹得左右摇摆
• We were buffeted by the wind and the rain. 我们遭到风雨的袭击。

8 escalate   

v.(使)逐步增长(或发展)，(使)逐步升级

参考例句：

• It would tempt Israel's neighbors to escalate their demands.它将诱使以色列的邻国不断把他们的要求升级。
• Defeat could cause one side or other to escalate the conflict.失败可能会导致其中一方将冲突升级。

9 mainstream   

n.（思想或行为的）主流；adj.主流的

参考例句：

• Their views lie outside the mainstream of current medical opinion.他们的观点不属于当今医学界观点的主流。
• Polls are still largely reflects the mainstream sentiment.民调还在很大程度上反映了社会主流情绪。

10 quantitative   

adj.数量的，定量的

参考例句：

• He said it was only a quantitative difference.他说这仅仅是数量上的差别。
• We need to do some quantitative analysis of the drugs.我们对药物要进行定量分析。

11 prospects   

n.希望，前途(恒为复数)

参考例句：

• There is a mood of pessimism in the company about future job prospects. 公司中有一种对工作前景悲观的情绪。
• They are less sanguine about the company's long-term prospects. 他们对公司的远景不那么乐观。

12 robust   

adj.强壮的，强健的，粗野的，需要体力的，浓的

参考例句：

• She is too tall and robust.她个子太高，身体太壮。
• China wants to keep growth robust to reduce poverty and avoid job losses,AP commented.美联社评论道，中国希望保持经济强势增长，以减少贫困和失业状况。

13 labor   

n.劳动，努力，工作，劳工；分娩；vi.劳动，努力，苦干；vt.详细分析；麻烦

参考例句：

• We are never late in satisfying him for his labor.我们从不延误付给他劳动报酬。
• He was completely spent after two weeks of hard labor.艰苦劳动两周后，他已经疲惫不堪了。

14 normalization   

n.（normalisation）正常化，标准化

参考例句：

• The visit signalled the normalization of relations between the two countries.这次访问显示两国关系已经正常化。
• He was pleased to the normalization of relationship between the police and the people.他很高兴警方和人民之间关系的正常化。

15 aggregates   

数( aggregate的名词复数 )； 总计； 骨料； 集料（可成混凝土或修路等用的）

参考例句：

• Snowflakes are loose aggregates of ice crystals. 雪花是冰晶的松散凝结。
• Our airplanes based in Europe should be included in the aggregates. 我们驻欧飞机应包括在总数内。

16 nominal   

adj.名义上的；(金额、租金)微不足道的

参考例句：

• The king was only the nominal head of the state. 国王只是这个国家名义上的元首。
• The charge of the box lunch was nominal.午餐盒饭收费很少。

17 underlying   

adj.在下面的，含蓄的，潜在的

参考例句：

• The underlying theme of the novel is very serious.小说隐含的主题是十分严肃的。
• This word has its underlying meaning.这个单词有它潜在的含义。

18 overdone   

v.做得过分( overdo的过去分词 )；太夸张；把…煮得太久；（工作等）过度

参考例句：

• The lust of men must not be overdone. 人们的欲望不该过分。 来自《现代汉英综合大词典》
• The joke is overdone. 玩笑开得过火。 来自《现代英汉综合大词典》

19 administrative   

adj.行政的，管理的

参考例句：

• The administrative burden must be lifted from local government.必须解除地方政府的行政负担。
• He regarded all these administrative details as beneath his notice.他认为行政管理上的这些琐事都不值一顾。

20 postponing   

v.延期，推迟( postpone的现在分词 )

参考例句：

• He tried to gain time by postponing his decision. 他想以迟迟不作决定的手段来争取时间。 来自辞典例句
• I don't hold with the idea of postponing further discussion of the matter. 我不赞成推迟进一步讨论这件事的想法。 来自辞典例句

21 constraining   

强迫( constrain的现在分词 )； 强使； 限制； 约束

参考例句：

• He was constraining his mind not to wander from the task. 他克制着不让思想在工作时开小差。
• The most constraining resource in all of these cases is venture capital. 在所有这些情况下最受限制的资源便是投入资本。

22 helping   

n.食物的一份&adj.帮助人的，辅助的

参考例句：

• The poor children regularly pony up for a second helping of my hamburger. 那些可怜的孩子们总是要求我把我的汉堡包再给他们一份。
• By doing this, they may at times be helping to restore competition. 这样一来, 他在某些时候,有助于竞争的加强。

23 tolerance   

n.宽容；容忍，忍受；耐药力；公差

参考例句：

• Tolerance is one of his strengths.宽容是他的一个优点。
• Human beings have limited tolerance of noise.人类对噪音的忍耐力有限。

24 structural   

adj.构造的，组织的，建筑（用）的

参考例句：

• The storm caused no structural damage.风暴没有造成建筑结构方面的破坏。
• The North American continent is made up of three great structural entities.北美大陆是由三个构造单元组成的。

25 economist   

n.经济学家，经济专家，节俭的人

参考例句：

• He cast a professional economist's eyes on the problem.他以经济学行家的眼光审视这个问题。
• He's an economist who thinks he knows all the answers.他是个经济学家，自以为什么都懂。