Back in the day, a snooty professor might have responded to an irrelevant or impertinent question by asking "What's that got to do with the price of tea in China?" As it turns out, the price of things in China is hardly irrelevant anymore and Chinese inflation is increasingly looming as a threat to economic stability and growth. (For background on inflation, see Inflation: The Inside Story.)
With so much to worry about at home, to say nothing of the ongoing debt crises in Europe, is there really a need to worry about one more thing? Given the size of China's economy, it's role as a major exporter of goods (and importer of materials), and its role as a financier of other countries' deficits, the answer would seem to be a definite "yes."
Inflation on a Long March in China
According to the official numbers, inflation hit a rate of 5.4% in China in March, the highest level in about 3 years. While that is far off the record high level of nearly 28% back in 1994, it's still a level that has investors, businessmen and officials worried.
More worrisome still is the probability that, like in the U.S., Chinese official inflation rates are understating matters by a significant amount. Wages have been rising by high single-digit percentages and property values are soaring. In fact, housing prices in some areas of China are reaching a level of 25 times median incomes - a level more than double the peak bubble ratios in many U.S. markets. (Learn more about why some government numbers may be less than credible in 5 Government Statistics You Can't Trust.)
Read the full column here:
http://financialedge.investopedia.com/financial-edge/0411/Why-You-Should-Care-About-Chinese-Inflation.aspx
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