China Leadership Monitor

Inflation, Welfare, and the Political Business Cycle

Wednesday, September 21, 2011

Since April, China has focused on the inflationary challenge. The months of delay before strong measures were taken allowed inflationary pressures to become established, and inflation increased through July despite tight monetary policy. Politicians have resorted to price controls, including in the sensitive housing sector. The lack of success in fighting inflation has fed an unsettled mood in the population, which complicates the power transition set for next year. In particular, the position of Li Keqiang, premier designate, has been weakened.