The International Monetary Fund has said that it is "absolutely normal" for countries like India and China to grow at over eight and nine per cent and experience inflationary pressure.
Countries like India and China need to manage this, the IMF managing director, Dominique Strauss-Kahn, said here yesterday. "It would be very surprising that an economy like the Chinese economy, Indian economy, could rise at 8, 9 per cent a year without ever facing the question of inflation.
It is absolutely normal. They have to manage it," Strauss-Kahn told reporters at a press conference here on the sidelines of the Spring meeting of the IMF and World Bank. Conceding that inflation is an issue of concern, he, however, said this is acceptable.
"There is concern, of course, which is absolutely acceptable. We have been arguing for a long time, and very happy when it has been implemented, that Chinese policy had to shift to a more domestic consumption-driven policy," he said. "No surprise.
Then, when you put in place this kind of policy, it has some impact on prices. So, the question is, to keep this inflation under control. It certainly is a concern. It was expected," he said in response to a question.
"At the same time, it comes at a moment when growth produces its results, namely that people have more purchasing power, of course, when you have more purchasing power, at the level, absolute level, which is not very high, all this is used for more consumption; so rightly it produces inflation," he added.
The IMF, he said, is working with the Chinese authorities, namely through the FSAP that has just been completed, on the consequences of higher inflation on the whole system.
"I haven't changed my mind, I think it is a concern. Still, it's under control. I don't expect that it will be out of control. But, it would be ridiculous to say that it is not one of the problems that the Chinese policy makers are now facing. Of course, because of the influence of China in the region, it spills over on to some other countries in the region," he said.
"So, it is not only a Chinese problem but a problem for most economies having high growth, and that is exactly what I had in mind when I was talking before about the risk of overheating," Strauss-Kahn said. The IMF head said food and fuel prices may have an influence, but the risk of inflation, which becomes a concern, comes from the fact that most of them reach their potential growth and so that the risk of overheating becomes real.