Stephen Green: Inflating China

Written by Stephen Green, head of China research at Standard Chartered Bank in Shanghai, from Wall Street Journal Asia:

Many people in China right now call these the country’s Golden Years. But after a fantastic run of double-digit growth, bigger pay packets, low and growing international influence, clouds are now forming over China’s economy. Most obviously the dark weather of the snowstorms earlier in the year and the terrible earthquake in Sichuan have rocked the country’s confidence. Less tangibly, but more importantly for the economy, stronger is emerging. And there is a danger that the hard decisions needed to break it will not be made while there’s still time to do so relatively easily.

In part, this is because policy makers are only gradually grasping the magnitude of the inflation threat. On the surface it looks like inflation as measured by China’s official consumer price index has been driven by food, primarily pork and edible oil. CPI has exceeded 8% year-on-year in recent months (but looks set to fall below 8% in May). Exclude food items, and prices overall only rose 1.8% in the year to April.

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