Inflation conundrum - the Chinese way
The global economy is now facing the twin headwind of sovereign crisis in Europe and a slowing Chinese economy. With the Chinese CPI touching 2.8% and close to the 3% rate which is supposed to trigger emergency measures like rate hike.
Question though is, in a highly overheated economy, is the Chinese inflation really as low? Despite having several control mechanisms and administered pricing regime, Chinese inflation is spiraling and the people are unwilling to accept the official data.
While the Chinese CPI is below 3%, the PPI numbers are more than double.
Source: National Bureau of Statistics, China
But, even that might not explain. If we use the difference between the growth rate of nominal GDP and the growth rate of real GDP, one can arrive at some proxy for inflation and the numbers look interesting. With the Q1'10 number released recently, the differential stood at a whopping 12.2%. Any views?
Source: National Bureau of Statistics, China
