Joined: Mar 04, 2007 Posts: 504 Location: Hong Kong
Posted: Tue Feb 19, 2008 12:31 am Post subject: China Inflation Due to Growing Money Supply
China's consumer price inflation grew a record-high 7.1 percent in January. The government blamed the snowfall and the usual price hikes ahead of Chinese New Year. However, an economist cited by Xinhua begs to differ:
Quote:
Song Guoqing, a professor with the China economic research center under the Peking University, deemed that heavy snows, starting to fall only since the later half of the month, were limited in impact on January's prices.
"The influence of the snow disaster may emerge in a longer term," said Song, predicting February's CPI might be driven up above eight percent.
Song attributed January's CPI hike mainly to a too rapid growth of money supply. Measures including raising interest rates and reserve requirement ratio by the central bank are still too weak to rein in the over-growing money supply since last July, he said.
"Interest rates climb up clumsily after the CPI rises, but the real interest rates are actually dropping," he said.
"Though the increase rate of China's trade surplus was slowing down, hot money kept flowing in," he said, adding the money pouring into bonds and stocks also grew rapidly, which he suggested should be taken into consideration when calculating the general money supply.
The central bank shall further tighten its monetary policies, put a brake on loans and accelerate the appreciation of the Renminbi, or Chinese yuan, he said.
While we have talked about inflation in China as a result of rising material costs and demand from the emerging middle class, there's been little discussion about Beijing's monetary policy. Their efforts to soak up liquidity through issuing bonds and raising interest rates don't seem to be working too well. "Hot money" - illegal inflows of foreign cash - are another factor. _________________ "We shall live in interesting times, and we shall die in them too." - Heineken
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