China is serious about fighting inflation. It raised reserve requirements again by 50 bps to a record 20.5%. This is the fourth time this year and 10th since the start of last year. It has also raised benchmark rates four times since last October.
The latest inflation numbers are at 5.4%. Food prices have increased much more and this is having a bit on real income. Wages have also started to rise and their are workers who will not move to the coastal areas at the current wages. This is turning into a classic wage price spiral with growth still coming in at 9.7% for the first quarter.
While there has been more focus on the Fed and the potential end of QE2, the policies of the PBOC may be more relevant for the global economy. The variance on growth could be much larger in China which will have greater impact on emerging markets.
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