China's central bank Gov. Zhou Xiaochuan said last month that he is on guard against inflation and that monetary policy is now "neutral, " after a slightly easy policy stance in the past year.

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They were right about this, and a whole generation of free-market intellectuals has been on guard against the threat of inflation ever since.

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Even if monetary policy is not stifling growth, the bank's language constantly gives the impression that policy needs to be tight to guard against the ever-present threat of inflation.

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But we are not on guard against deflation, whereby the intrinsic value of money goes up--the opposite of inflation.

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