Friday, December 28, 2007

Be Wary of the Chinese Economy

Keep a close eye on the economy in China.
The Chinese government backed up its recent words with action Thursday, allowing the yuan currency to appreciate against the U.S. dollar in its tightly controlled foreign-exchange market at the fastest pace since Beijing ended its U.S. dollar "peg" in 2005.
Actually, China has little choice as they have to inflate their yuan value to keep pace with their higher inflation. The international money market would have forced the same thing.
Faster appreciation in the yuan is likely to help offset inflationary pressures from a weaker dollar and rising global commodity prices, Yao reportedly said. He that added consumer inflation will likely ease slightly next year, to a 4.5% rate from this year's projected 4.7%.

China's annual consumer price inflation surged to 6.9% last month, its highest level since December 1996, mostly due to soaring food prices.
Always take the specific quote of econometric data from China with a grain of salt. Communist countries tend to get creative with how they calculate such numbers. But just from logic you can tell that their inflation rate is getting uncomfortably high and probably is still rising.

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