China Faces Increased Risk of Stagflation Due to COVID-19 Spread

[Asia Economy Beijing=Special Correspondent Park Sun-mi] Concerns are growing that China could fall into stagflation, where inflation occurs amid economic recession, despite the economic downturn caused by the COVID-19 pandemic.

On the 6th, China's state-run Global Times reported that among Chinese economic experts, worries about the risk of stagflation in China are increasing, noting that the prices of raw materials for electronics, home appliances, and daily necessities have risen by about 20-30% due to the impact of COVID-19, which deserves close attention.

It also reported that even if the trend of COVID-19 spread within China slows and the domestic inflation rate eases as early as early April, the ongoing spread of COVID-19 outside China could disrupt global supply chains, thereby increasing the risk of stagflation in China.

An ODM (Original Design Manufacturer) official from an electronic parts manufacturer in Shenzhen, Guangdong Province, explained, "The prices of components such as electrical resistors and capacitors have risen about 30% in the past few days," adding, "This is because factory production stoppages have been prolonged due to COVID-19, reducing supply."

Another industry insider also said, "Smartphone prices may rise further due to increased component and production costs," adding, "Just as bread prices rise when flour prices increase, it is inevitable that raw material price hikes lead to product price increases. The issue is only how much of the increase will be passed on to consumers."

The newspaper also added that, taking the automobile industry as an example, although 84.1% of automobile manufacturers in China have resumed operations, production costs are rising, as evidenced by air conditioner component prices inside cars increasing by 11% in just over a month.

Experts advise that Chinese policymakers need to enter a higher state of alert, keeping the possibility of stagflation in mind.

Tian Yun, Vice Chairman of the Beijing Economic Operation Association, told Global Times in an interview, "Once the spread of COVID-19 within China is controlled, Chinese consumers will quickly recover their purchasing power. However, their willingness to consume may be hindered by rising prices. There is a need to prepare more fiscal stimulus measures and price stabilization policies."

Meanwhile, amid severely contracted economic activity in China, the consumer price index (CPI) inflation rate for January surged to its highest level in over eight years due to the Spring Festival (Chinese New Year) holiday and the spread of COVID-19. The January CPI inflation rate recorded 5.4%, exceeding the Chinese government's usual inflation management target of 3%, as well as surpassing the 4.5% CPI inflation rate recorded in December of last year.

This content was produced with the assistance of AI translation services.