When high levels of capital investment spending fueled a sustained increase in Chinese inflation from 1991 to 2011, the authorities quickly brought the situation under control, and over the last decade, the consumer price index has rarely exceeded 2%, compared to 5.4% in 2011.
With policymakers in most major economies now losing their grip on price stability, can China continue to keep a lid on inflation this year and next?
To answer this question, it is worth considering how China succeeded in curbing inflation for the past decade. Notably, the government refrained from new rounds of large fiscal and monetary stimulus, and thanks to the central bank’s increased autonomy, money creation and credit growth stopped passively catering to investment projects from below.
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