China: Inflation On Fire

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It is not enough that the cost of food is moving up by double digits in China. Now other components of the economy are showing even worse inflation.

In April, factory and property spending rose 26% in the world’s most populated country. The banks in the country are still tightening credit, but, so far that has not done much yet. According to Bloomberg, one senior Chinese official said  “New local government officials who took office in March are politically motivated to expand their local economies.”

That motivation could do a lot to hurt China’s GDP growth. Not only is the country’s middle class being squeezed by rising food costs, but now the building industry may find that rising demand for the supplies required for commercial construction may make that process much more expensive.

The inflation pressure in the country is likely to meet falling demand for the nation’s goods as Western economies slow and import less from China. If that happens, there will be a partial economic collapse in the country. No wonder the Shanghai Composite is down 50% from its peak last October.

Douglas A. McIntyre