IMF Sees Early Signs of Inflation Comeback in China on Oil Shock

n0}]zco{qoim32rdegsau42q_media_dl_1.png National Bureau of Statistics

Article content

(Bloomberg) — China is seeing signs of a return of inflation as the Iran war pushes up energy costs but will need more sustainable price gains to fully turn around deflationary pressures, according to an International Monetary Fund official. 

Article content

“If you look at inflation, certain numbers have come up,” Krishna Srinivasan, the IMF’s Asia-Pacific director, said in an interview on Bloomberg Television on Thursday. On whether China is experiencing reflation, he added that while there have been some signs of that, “I would want to see it on a more durable basis before I can say anything more firmly.”

Article content

Article content

Article content

The world’s No. 2 economy is set to end a record streak of economy-wide deflation as producer prices emerge from more than three years in the red. The key question is whether this fuels a broader reflation where corporate earnings and workers’ wages accelerate as well.

Article content

Article content

The IMF has long called for a rebalancing of growth, where domestic demand plays a bigger role. This year, the opposite has been happening with retail sales slowing and exports surging. As a result, many downstream industries are still struggling to pass on higher raw material costs to consumers.

Article content

“For China, the story is to reflate the economy and to boost domestic consumption to have more sustainable growth,” Srinivasan said. He called on Beijing to take forceful measures to fix the housing market, which is needed to help spur a durable recovery. 

Article content

China’s growth has held up this year, in part thanks to a boom in global demand for artificial intelligence and high-tech related products that has led to explosive export growth across Asia. That’s helping mask the challenges posed by the Iran war.

Article content

The IMF is bracing for prolonged economic disruption in Asia, rather than a brief bout of volatility, given the region is “highly energy intensive,” according to Srinivasan.

Article content

The IMF expects gross domestic product growth to slow by a cumulative one to two percentage points by 2027 across the region, while inflation could be about one to four percentage points higher, Srinivasan said. 

Article content

When asked what kept him up at night, he pointed to the confluence of risks facing Asian economies, including high energy prices, a tightening in financial conditions and any turn in the AI-led tech cycle.

Article content