Economy of China, is regarded as an economy, which is rapidly growing. China inflation, was trigerred mainly due to hike in the price of food products. This trend was observed in the month of February, 2007. This hike in China inflation, compelled the Central Bank of China, to increase the rates of interest.
China Inflation depicted the following trends:
The consumer price index increased by 2.7% as compared to the CPI a year back, during the same period. The statistical data was provided by National Bureau Of Statistics. The cost of meat, alcohol and eggs increased. There was an increase in the cost of rented premises as well.
The Central Bank had set the inflation target at 3% for the year 2007. In the month of January as well as February, the consumer price index was recorded at 2.4%. This was well below the target set by the Bank. According to a reputed economist, China inflation shows up in food scarcity. He went on to express that if not in food, China inflation is likely to manifest itself in other sectors of the economy.
Majority of the people, who had deposits in their bank accounts feared they would lose out on their money. It was feared that China inflation would eat up the interest income of money held in bank accounts. This tendency was seen in the month of March 2007. Over the months, things have looked up.
Real estate and wages:
As the standard of living in China is gradually on the rise, the cost incurred on real estate is also escalating. Interest rates were increased by the central bank in China to choke China inflation. This in turn tightened credit, worldwide. Increase in cost of commodities also necessitated increase in wages. Hike in wages was demanded by the workers. Wage rates are steadily rising at 10 percent. More and more companies in China, have decided to hike costs for exporting commodities. Investments made for constructing roads as well as factories registered an increase by 25 percent. It is reckoned that this investment was worth £200 billion.
Low rates of interest, inflation and growth in high liquidity gives rise to asset bubbles. History shows that the previous governments of China, made use of quantitative methods to tackle the economic tempo.
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Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. IMF’s Chief Economist from September 2003 to January 2007. Inaugural recipient of the Fischer Black Prize.
CEO and co-CIO of PIMCO. Served as President and CEO of the Harvard Management Company for 2 years, while also working at the IMF for 15 years. In 2008, his book "When Markets Collide", won the Financial Times award for Business Book of The Year in addition to being named as the one of the best business books of all time by The Independent.
Vice President and Director of the Global Economy and Development Program at the Brookings Institution. Former Turkish Minister of State for Economic Affairs. Head of the United Nations Development Program (UNDP) from 2005-2009.
James W. Harpel Professor of Capital Formation and Growth at the John F. Kennedy School of Government in Harvard University. Director of Program in International Finance and Macroeconomics at the National Bureau of Economic Research.