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Unit 2 Macro: Focus on China - Inflation
26th January 2012
The super-charged growth in China has brought about a rise in inflationary pressures and is a good example of the possible conflicts between rapid economic expansion and rising costs and prices. The Chinese government’s inflation target is 4% but inflation is a growing worry for the Chinese government – after some mild deflation in 2009 there has been acceleration in the consumer price index. Agricultural prices have been a key driver of inflation with food costs up 12% in the year to March 2011.
For many commentators high inflation in China is a symptom of an over-heating economy with an unsustainable credit and property boom. Another factor behind high inflation is that Wages are rising fast in China – many economists believe that China has hit a point in its development at which demand for labour starts to grow faster than supply, creating labour shortages and pushing up salaries. This is known as a Lewis Turning Point.
Annual change in consumer prices in China
Data from Timetric.
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Inflation, consumer prices (annual %), China from Timetric
China consumer price index
Data from Timetric.
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Consumer price index (2005 = 100), China from Timetric
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Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.