Inflation vs. Interest Rates: The Battle Continues

renminbiAs the United States winces with each new release of data that suggests the world’s largest economy may be shrinking, the world’s fourth largest economy looks to be facing it’s own new set of anxiety-producing figures. In a preview of official numbers due tomorrow from the National Bureau of Statistics, the Bank of China is reporting that inflation likely set an 11-year record at 8.3 percent last month. From Reuters via Economic Times:

The bank, China’s second largest lender, said in its report that February’s spike in the consumer price index was fuelled mainly by food, which rose more than 22 per cent from a year earlier, according to Xinhua.

“Making things worse… when people expect prices to keep rising, they will spend more to avoid those future rises, which in turn will push prices up,” Xinhua said, quoting the bank.

Meanwhile, in an revelation sure to upset bargain shoppers in the U.S. and elsewhere, the government also announced the producer price index (PPI), a critical measure of costs borne by manufacturers and wholesalers, rose 6.6 percent in February. In an article on the announcement, AFP reports raw material prices rose nearly 9 percent, while crude oil climbed almost 38 percent. (American drivers, China feels your pain.)

According to Xinhua, the Bank of China expects the central bank will raise interest rates yet again in the first half of the fiscal year to deal with the problem.

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