Recovery policies must be precise and powerful

The consumer price index for November has continued falling, while the core CPI's growth compared with that of last year has remained at 0.6 percent for three successive months, the lowest since April 2021.

To a large extent, that's caused by the drops in food prices, especially that of fresh vegetables and pork. The former has dropped 8.3 percent in price while the latter has fallen by 0.7 percent. Among the non-food items, energy prices have risen, while service prices including airline tickets, hotel prices, and tourism package prices have dropped by 0.2 percent compared with last month.

On the one hand, the lower CPI is good news for residents as they can spend less on their daily consumption, but on the other hand the low service prices show that the domestic economy faces problems such as weak demand and weak consumption. That calls for policies to stabilize economic growth, such as keeping ample liquidity in the monetary market.

Some worry that loose monetary policies might push the CPI higher, but there are some reasons that make that unlikely.

First, although the COVID-19 pandemic prevention and control measures have been relaxed, the economy might not recover immediately. Experiences from the Republic of Korea and other countries and regions show that the economy might experience a season of mild slowdown, after which it will recover fast.

Second, there might be a "scar effect" from the pandemic, namely that people might prefer to deposit money instead of spending it, or that people might be cautious in traveling outside even after the pandemic control measures are optimized. That would curb people's consumption willingness.

Third, the domestic realty market will take time to recover. The confidence of residents in purchasing property will take time to pick up, and only when residents are willing to spend money in the realty market will the real estate enterprises have ample cash to buy land, thus attracting more investment. Currently the market has not reached that stage yet.

Therefore, the policy focus now should be on stabilizing economic growth and encouraging domestic demand. Monetary policy should be both accurate and effective, so that the economy will recover more speedily and consumer confidence will be restored.