Taking inflation by the horns

Curbing soaring prices has become a priority for China. In May the consumer price index (CPI), a measure of inflation, reached 5.5 percent year-on-year, a 34-month high, according to the National Bureau of Statistics.

Inflation is the result of the government's loose monetary policy since late 2009 which allowed extra money to flow into the economy, says Liu Lingling, professor of economics at Tsinghua University. The broad currency supply, or M2, in China reached 76.34 trillion yuan ($11.78 trillion) in May.

Since it is impossible to take back the extra money by tightening the monetary policy, it is important to analyze the types of inflation China faces and pay more attention to the fiscal policy, Liu says.