Twofish's Blog

August 14, 2007

China inflation numbers

Filed under: china, finance — twofish @ 5:23 am

 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.

Advertisements

1 Comment »

  1. interesting post. Although I am not an expert, it doesn’t seem like July’s CPI is an indication of either loose monetary policy or a demand shock. If you seperate out food from other categories, CPI only increased roughly 0.9%. In addition, the jump in food prices seems to be the result of a supply shock (i.e., farmers cutting back supply due to disease outbreaks and flooding).

    The real question seems to be whether this level of inflation can be maitained, or is simply an aberration. I am more bearish than bullish.

    Comment by asiarising — August 23, 2007 @ 3:58 am


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Create a free website or blog at WordPress.com.

%d bloggers like this: