Wednesday, January 19, 2011

Inflation in China

China’s CPI inflation rate was 4.6% on a y/y basis during December, down a tad from 5.1% in November. In the US, the CPI inflation rate remained subdued at 1.5% during December. The CPI for food is soaring in China, rising 9.6% y/y in December, while it was up just 1.5% in the US during December. Excluding food, the CPI rates of inflation in China and the US are closer at 2.1% and 1.5% in December, respectively.

China’s global outreach program is clearly motivated by the nation’s desperate need for more food, energy, and industrial commodities. With such a large motivated buyer in the market, it’s no wonder that commodity prices are soaring, and should continue to do so this year. The Chinese are bound to counter Washington’s demands for a stronger currency by complaining that the Fed’s QE-2.0 program is boosting commodity prices. Nice try. The fact is that China’s inflation problem is homegrown. No one does quantitative easing better than the Chinese. As I’ve noted previously, over the past two years through November, China’s international reserves, bank reserves, and M1 are up 47.6%, 51.9%, and 57.1%. (We update these charts monthly for our subscribers in our China briefing book.)

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