Despite US Treasury Secretary Tim Geithner acknowledging the “promising shifts in the direction of Chinese economic policy” during the annual Strategic and Economic dialogue taking place over the past few days between the US and China, the latest round of inflationary data suggests that further strengthening in the value of the yuan may be necessary. Facing continued criticism from both the US and its other trading partners for failing to allow its currency to adequately strengthen, data released today could force the Chinese to acknowledge that more needs to be done to tackle the Economy’s rising levels of inflation.
Whilst China’s Vice Minister of Foreign Affairs Cui Tiankai has stressed that any decision to amend monetary policy will be made with China’s national interests in mind, data released overnight showed that Chinese inflation rose by 5.3% Year on Year. Whilst the figure is slightly down on the previous month’s 5.4% Year on Year figure, inflation remains high. Whilst recent steps to allow yuan appreciation by the Chinese Government have seen gains relative to the US dollar of around 4%, other recent data; including the most recent Producer Price Index data which reported Year on Year growth of 6.8%; has shown that inflation remains a challenge.
Whilst Minister Cui Tiankai may be unwilling to be forced into action through the demands of its trading partners, rising inflation is something which the Chinese cannot ignore. Whilst the steps taken to date are having an impact; as seen recently in the deceleration of both M1 and M2 Money Supply to 15.3 and 12.9 respectively; the purchasing power of the Chinese consumer will be restrained by inflation. Indeed, New Yuan Loans data showed further gains from 679.4 Billion yuan in March to 739.6 Billion yuan in April; a sign that credit continues to grow.
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