(Bloomberg) — Former People’s Bank of China Governor Yi Gang said his nation should focus on fighting deflation, in a rare admission by a prominent figure in China that falling prices are threatening the country’s growth outlook.
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China should focus on fighting deflationary pressure now, Yi said at a panel discussion at the Bund Summit in Shanghai on Friday.
Analysts in China have been advised to avoid discussing sensitive terms such as “deflation” or expressing views deemed overly negative for the economy. That comes as the country faces its worst deflationary streak in 14 years, putting pressure on corporate profits and wages.
He said China’s immediate focus should be to turn its GDP deflator positive in the coming quarters. He noted that broad measure of prices had been negative for several quarters.
Yi’s comments marked one of the most explicit acknowledgments by a former PBOC official of China’s deflationary concerns. Deflation could weigh on the economy as falling prices lead consumers to delay purchases.
China’s economic recovery is still underway but relatively slow, Yi said at the panel alongside former central bankers including Haruhiko Kuroda, former Governor of the Bank of Japan, and Donald Kohn, former Vice Chairman of the Federal Reserve.
Yi also said he hopes the country’s producer price index will converge to about zero by the end of this year. The gauge fell for 22 straight months in July, underscoring persistent price pressures.
He said China faces the problem of weak domestic demand, especially on the consumption and investment side.
Yi emphasized the need for proactive fiscal policy and an accommodative monetary stance to support growth, echoing calls from many economists.
A US-trained economist and Beijing native, Yi last year ended his five-year tenure at the helm of China’s central bank that’s been marked by a restrained policy approach focused on moderate stimulus and reducing financial risks in the economy.
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