From Power and Interest News Report:
On October 25, 2007, China’s National Bureau of Statistics (N.B.S.) released financial data for the third quarter. The data showed China’s economy was growing slightly faster than expected, but that persistent inflation may curtail future growth. Because Beijing has limited options for reversing this trend, inflation may require some important political changes.
A Growing Problem
According to the N.B.S., the third quarter ended with an inflation rate of 6.2 percent, just below the ten-year high set earlier this year. This level of inflation is high enough to cause concern. Moreover, it is unlikely that the official rate is the real rate. The Chinese government maintains a system of price controls for many goods, including gasoline. The price of oil on the international market jumped from US$65 to $90 per barrel during the third quarter, while the price of gas at China’s pumps has remained relatively constant. The exact formula for China’s consumer price index is unknown, but given China’s high degree of dependence on energy intensive industries, a reasonable guess for the weight placed on fuel in the CPI formula is ten percent. Using this as an estimate, the real rate of inflation in China is likely somewhere between eight and ten percent. [Full Text]
Richard A. Komaiko is a Research Fellow at the U.S.-China Economic and Security Review Commission and a David L. Boren National Security Scholar at the National Defense University.
