comments on inflation in China

When the western educated offspring do what they’ve been taught to fight inflation it can all go very wrong.
Their main tool, whether they know it or not, directly or indirectly, is higher interest rates, which only directly makes the inflation worse
through the cost channel and interest income channel, which further weakens the currency/raises costs through the import channel as well.

And at the same time inflation tends to tighten up fiscal balance that can cause a crash.

Also, I received this comment today:

“The Chinese government will take every opportunity to blame foreigners for inflation (and any other problem that crops up) this a well worn strategy.

It is widely believed in China that QE2 has caused the current increase in inflation. The reality is that inflation is being caused by an increase in energy costs. Also because agriculture now uses much more energy than it once did as a result of modernization, food prices are now largely a derivative of energy prices. Taken together, food and energy make up most of the increase in the CPI.

Some more data points: I spoke with a cab driver here in Shanghai yesterday about the rumored across the board fare increase from 12 to 15 yuan and he said if it occurs it will be to offset higher energy costs. There is also news that several major domestic oil producers have been caught selling at prices above the allowed level.”