INFLATION HEATS UP IN CHINA

Consumer inflation in China was reported at 7.1% today, while producer inflation was reported to be at 6.1% on Monday in a separate report. Both measures are annual inflation rates that compare prices in January of 2007 to January of 2006. Some economists believe these figures actually underreport true inflation in China due to the price controls that have been put on some products by the government.

For comparison, the United States consumer inflation rate reported through the Consumer Price Index (CPI) was 4.1% in 2007 versus 2.5% in 2006, while the Producer Price Index (PPI) was 6.3% in 2007 versus 1.1% in 2006.

From The New York Times:

Yu Yongding, the influential director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences and until 2006 a member of the monetary policy committee of China’s central bank, said that high inflation in January meant that the Chinese government was likely to continue pursuing austerity policies.

To fight inflation, China is likely to allow its currency to “appreciate continuously” so as to hold down the cost of imports, despite signs that economic slowdowns in the United States and elsewhere may cool demand for Chinese exports, Mr. Yu said.

“Inflation is the No. 1 enemy for China,” he said in a telephone interview. “It’s affordable for us to sacrifice a little on the growth side to bring inflation under control.”

Chinese exporters are trying to pass on their rising costs to overseas customers, which could contribute to inflation in the United States and Europe.