Chinese inflation rises to highest rate in 11 years
HONG KONG: Consumer prices rose 7.1 percent in China last month, the largest increase in more than a decade.
The steep increase in prices, announced Tuesday by the Chinese government's National Bureau of Statistics, is the latest warning sign that China has been transformed from a moderating influence on global prices to a source of inflationary pressure.
Link (http://www.iht.com/articles/2008/02/19/business/19inflation.php)
What effect do you think this will have on the European and American markets?
Neu Leonstein
20-02-2008, 05:58
What effect do you think this will have on the European and American markets?
Probably not a good one. They're being a bit sensitive about bad news at the moment.
Demented Hamsters
20-02-2008, 06:13
China's also set to overtake Germany as the biggest value exporter this year.
As for the inflation, a good couple of % points of that is due to the appalling snow storms they've had over the past few weeks.
Biggest worry right now is that factory wages haven't been keeping pace with rural rises - and due to the food shortage because of the weather, farm wages could well increase.
What this means is that a whole heap of factories in the Pearl River delta could shut down, as migrant workers decided it's just not worth it to return to work after Chinese New Year and opt to stay home. Add in tougher labour laws to be introduced this year which is expected to cause more shutting downs. This will flow on into Hong Kong (since most of said factories are HK owned) which is not good.
Probably not a good one. They're being a bit sensitive about bad news at the moment.
*hands Uncle Sam a box of tissues*
I don't know what the effect will be on American/European markets - probably not good under current conditions. As far as China itself goes, I don't think it will matter too much since the government has the ability to institute whatever top-down policies are needed to control the economy.
I guess it depends. On one hand, higher inflation increases the cost of manufacturing goods which in turn would result in higher prices in markets that import Chinese goods. On the other hand, given that Chinese inflation has been repressed and prices artificially controlled, higher inflation may not only motivate the Chinese government to introduce more market pricing in to the economy but also invest in reducing resource intensity and waste.
That, of course, would reduce commodity demand and help to offset inflation worldwide, although the extent of such an offset is unknown. In addition, it would make the Chinese economy more flexible and better able to handle the transition from a developing nation to a developed one without suffering losses in its economic growth potential.
By and large, I would say Chinese inflation is a good thing because it will stimulate more macroeconomic reform and further push China towards an intensive growth model necessary for a developed economy.