Reuters, Beijing, August 9-The People’s Bank of China released its Monetary Policy Implementation Report for the second quarter on Monday. Its column said that the current inflationary pressures in China are generally under control. This is largely due to the fact that China’s money supply growth rate has been increasing since May last year. Leading other large economies to gradually return to normal; the next step is to maintain a prudent monetary policy that is flexible, precise, reasonable and appropriate, to maintain the growth rate of money supply and social financing scale basically matching the nominal economic growth rate, and adhere to the two “pocket bags” of the central bank and the fiscal Positioning, fundamentally maintain the overall stability of the price level.
The column entitled “Correctly Understanding the Relationship between Currency and Inflation” stated that the difference between the two quantitative easing policies after the 2008 crisis and the 2020 epidemic should be treated reasonably, and the relationship between currency and inflation should be correctly understood; in general, The relationship between currency and inflation has not changed. A large amount of currency will inevitably lead to inflation. The key to stabilizing inflation is to control the currency.
According to the article, from a monetary perspective, from the end of the third quarter of 2008 to the end of 2017, although the central banks of the United States, Europe, and Japan implemented quantitative easing policies and greatly expanded their balance sheets to increase the base currency, the average annual growth rate of the money supply (broad money) was only They were 6.5%, 2.8%, and 2.7%, which were roughly the same as the average growth rates of nominal GDP of 3.1%, 1.8%, and 0.4% in the same period. This is the fundamental reason why developed economies did not cause significant inflation.
“The base currency is different from the currency. The base currency is mainly to meet the needs of the banking system’s reserves and payment and settlement, while the currency is the capital used by economic entities, which is created by banks through the expansion of assets such as loans. In the long run, currency and Inflation is closely related, not the base currency.” The article said.
The National Bureau of Statistics of China announced on Monday that the Consumer Price Index (CPI) in July rose 1% year-on-year, slightly higher than the Reuters survey estimate of 0.8%; the month-on-month increase was 0.3%, and the Reuters survey estimated a median increase of 0.2%. Although pork prices continued to fall, the flooding weather caused fresh vegetables to rise, which drove the July CPI to increase year-on-year higher than expected. Analysts expect the PPI to hover at a high level for a period of time, and the future monetary policy is expected to be mainly targeted easing. (Finish)
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Post Huang Bin; review Yang Shuzhen
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