China inflation watch

The real­i­ty, in Chi­na as every­where else, is that only the price of cred­it con­trols demand. bq. Annu­al infla­tion of 5 per cent would eat away steadi­ly at the real val­ue of gov­ern­ment debt and the bad debt moun­tain held by banks. The author­i­ties may be will­ing to take the risk that, in a high growth econ­o­my, mod­er­ate infla­tion can be man­aged with­out caus­ing problems.(“Financial Times”: There are strong signs that infla­tion is no longer ‘mod­er­ate’ in Chi­na by the stan­dards of oth­er economies. Ques­tion is whether that ruler can be used in Chi­na where labor sup­ply is still abun­dant and export com­pet­i­tive­ness still very strong.

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