Yuan appreciation can “in theory” help curb inflationary pressure in the world’s second-biggest economy by easing the cost of imported goods, Sheng Laiyun, spokesman for China’s statistics bureau, said today in Beijing.
“If imported inflation is the main factor driving up inflation then yuan appreciation can reduce the cost of purchases and as a result help ease inflation,” Sheng told reporters after a briefing to discuss April’s inflation data.
China’s consumer prices gained 5.3 percent in April from a year earlier, exceeding the 5.2 percent median forecast in a Bloomberg News survey of 30 economists and the government’s 4 percent annual inflation target for this year. Officials including People’s Bank of China Governor Zhou Xiaochuan have said the yuan’s exchange rate can be tool for reining in prices.
Sheng also urged caution, saying today that currency appreciation is a “double-edged sword.” “If inflation is driven by domestic demand then appreciation of the yuan will likely add problems,” he said without elaborating.
It’s not yet clear what the main factors are behind the current bout of inflation, Sheng said.
April’s pace of inflation slowed from March’s 5.4 percent increase. Food inflation eased to 11.5 percent from 11.7 percent in March and non-food inflation was 2.7 percent, unchanged from the previous month which was the highest in at least six years.
Upward pressure on prices remains high, Sheng said today. Government price controls have achieved an initial effect and food costs had a smaller impact on the consumer-price index last month as prices declined. “The trend of price rises has been initially curbed,” he said.
The government will be able to keep prices “basically stable” if its policies are well implemented, Sheng said, declining to respond to a question about whether inflation can be kept within the government’s target this year.
The lagging effect of earlier price increases contributed 3.1 percentage points to inflation last month while 2.2 percentage points was accounted for by “new factors,” Sheng said.