What is interesting are the July CPI numbers. There are basically two narratives going on here. One is that the inflation is due to demand shocks. The other is that inflation is due to monetary supply expansion. The second one is significant for RMB appreciation.
I really don’t have a clue right now which one (if either) is correct, but what I’m really looking for is some empirical test to distinguish between the two. (i.e. if it is due to monetary expansion that you ought to see X.) The other thing that I’m looking for is the consequences of being wrong. What happens if you do policy X on the assumption that it is a monetary issue and it isn’t versus what happens if you assume that it isn’t a monetary issue and it turns out to be. The curious thing about this is that it will be obvious by the end of the year )(and probably by October) which narrative, if either, is correct.
There are interesting implications for the way that the financial media presents information. It seems really hard for an economist or analyst to just say “I don’t know,” and one thing that would be nice (and I’d put one together if I had the time) is a chart summarizing the different points. The other interesting thing about this issue is that this is an issue over which you can have a “real debate” as opposed to the “pseudo-debates” people tend to have on the media.