This year, global markets and central banks have focused their attention and debate on the controversial issue of inflation. At the beginning of the year, ANBOUND has mentioned that inflation is the main problem facing the global economy in 2021. This controversy lasted from the beginning of the year to its end. The current situation appears to reveal that major economies such as the United States, Europe, and the United Kingdom have all reached historic highs in terms of inflation, while some major central banks, such as the Federal Reserve, no longer view it as "transitory," providing a definitive answer to this question. However, the "stagflation" mentioned by some markets and researchers did not appear this year while developed countries have shown a strong recovery. With this, inflation continues to be the focus of the market and policies next year. For China, the changing trend of inflation is also related to the forward-looking policy and the stability of market expectations, which requires continuous attention.
Looking at the situation this year, we can see that the global inflation level has continued to rise mainly because of the concentration of market demand after the lifting of lockdowns in the post-pandemic period. At the same time, the situation is impacted by the distortion of the global supply chain that caused the imbalance of supply and demand. The continuation of the easing policy promoted by major central banks including the Federal Reserve is certainly another major factor as well. As things stand, in the new year, policy changes, as well as supply chain recovery and slower demand growth actually mean that the inflation level will face a moderate decline after reaching its peak. In other words, the Fed's view that inflation is "transitory" is not unreasonable. The effects brought about by the pandemic are the main factors in this round of global inflation. Under the circumstance that effects of the pandemic are gradually weakening, the global economy will continue to recover, and there will be no "stagflation" in 2022. It is more likely that the economy is growing moderately and inflation has reached an inflection point, where it will moderately fall back.
When it comes to China, ANBOUND has previously estimated that the country's overall price level will remain moderate this year, but structural distortions need to be prevented. Judging from the current results, this estimate has become a reality. The impact of inflation is more reflected in structural issues. This is mainly due to the integrity of China's industrial chain and supply chain, as well as the soundness of its monetary policy. In addition, the slowdown in demand in the second half of the year also eased inflationary pressures to a certain extent. However, the continuous expansion of the PPI and CPI scissors gap will also cast a dark shadow over the situation next year. In fact, this distortion has already begun to push up the CPI. This means that next year there will still be structural inflationary pressures in the country.
In terms of the overall trend, there will be greater pressure for stable economic growth next year, which will, to a large extent, curb the rise in inflation. At the same time, under effective pandemic control measures, the supply side has recovered and adapted to the environment in the post-pandemic period, and there will be no major fluctuations. The gradual recovery of the supply of international energy and bulk commodities means that the situation of imported inflation will gradually ease. Among consumer goods prices, food prices are mainly affected by the pig cycle, and non-food prices will also be restricted by overproduction. The overall impact is expected to be controllable.
However, the strengthening of global climate change policies will have a long-term impact on inflation. In 2021, the rise in the prices of raw materials such as those in the energy sector and the bulk commodity sector, as well as the rise in the prices of raw products, are all related to this to a certain extent. As it has changed market expectations and affected investment in related fields, this has made it difficult to meet the continued growth in energy demand while the energy structure is changing.
In China, this has not only caused coal prices to soar but also affected industrial production and exacerbated the trend of economic slowdown. In the greater picture, the increase in energy costs brought about by the development of carbon reduction is a long-term trend, and this trend will eventually affect the final consumer goods prices. This policy factor may bring about continued tension in energy supply and demand, and may even bring about a qualitative change in a certain field or region. From this point of view, in the climate change policy, maintaining policy stability and sustainability is not only beneficial to the long-term goal of carbon reduction development but also bears important significance for stabilizing inflation and stabilizing the economy.
Changes in inflation not only have a huge impact on economic and financial activities but also restrict macro and micro policies. As far as the global situation is concerned, many market institutions have begun to worry that under the COVID-19 pandemic, the severity of inflation may not be as great as imagined and that the policy of central banks in various countries will shift too quickly, which will adversely affect the economy. Looking at the situation in China, the actual economic slowdown next year will still pose great pressure, and the growth prospects will not exactly be optimistic, and this has become a general consensus. In the case of a moderate inflation outlook, monetary policy still has room for adjustment on the basis of adhering to stability in order to increase support for steady growth. All in all, the impact of this on inflation is not just about the stability and predictability of monetary policy. Fiscal policies, carbon reduction policies, and various industrial policies will more or less have an overall or structural impact on changes in inflation. This would necessitate the relevant party maintaining policy stability and being forward-looking in order to stabilize both growth and expectations, which is salient to improve policy coordination so as to avoid the negative interference of policy itself on inflation.
Final analysis conclusion:
The focus of the market and governmental attention this year has been on inflation changes and expectations, and the same issue will be the focus next year. Inflation will not have a sufficient overall impact in China next year, despite increased pressure to stabilize the economy. Maintaining policy stability, being forward-looking, and being well-coordinated, on the other hand, will be critical for China to stabilize growth and avoid risks.
