Rising Inflation May Force China to Let Currency Appreciate

Rising inflation, rising food prices, and unhappy consumers may force China to finally allow its currency to appreciate against the dollar. From the Los Angeles Times:

Rising prices for food, fuel and housing have led to China’s worst inflation in more than two years. Growing discontent among ordinary Chinese has the central government scrambling to cushion the fallout from the nation’s booming economy.

“Prices are going up a lot and it’s getting very difficult,” said Wei Shuping, 60, inside the frosty Chaoyangmen market where she perused stands piled high with cabbage, turnips and carrots. “I can’t believe what I’m paying for potatoes. And things are only going to get more expensive during Chinese New Year” next month.

China’s leaders have taken anti-inflationary measures, including raising interest rates and applying old-fashioned price controls. Chinese President Hu Jintao this weekend expressed confidence that China can control inflation and said it wouldn’t get out of hand. Hu will arrive Tuesday for his first state visit to the U.S.

But so far Beijing’s policies haven’t tamped down prices, nor quelled frustration that has sometimes turned violent. Now, some economists say, Chinese leaders may have little choice but to allow the yuan to appreciate at a faster pace against the dollar.


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