Tuesday, February 20, 2018

Inflation, Something Else We Can Import from China

March 26, 2010 by  
Filed under Smart Money Says

Inflation is heating up faster now in China, India, Brazil, Vietnam, and other developing countries; than in the U.S., Europe and Japan. In his blog post today, Jim Jubak gives five reason why this is happening.
1. Their economies weren’t has hard hit by the global crisis
2. The governments of the underdeveloped economies “don’t think they have much choice but to pursue pedal to the metal growth policies to stay even with the demand for jobs by young and fast growing populations.”
3. They were experiencing inflationary pressures before the financial crisis. “The current rise in inflation is back to business as usual in these sectors.”
4. Their economies are based on export models. “Fast economic growth also makes these countries magnets for international capital, which again adds to the domestic money supply.”
5. Supplyside Bottlenecks – – “China, for example, has ambitious plans to expand its rail network but it doesn’t have the domestic capacity to produce all the rolling stock it needs. Imports could supply some of the demand while China’s rail equipment makers geared up production but the country’s export model works to discourage imports. So China’s rail and construction companies are left scrambling for the equipment and goods they need—driving up prices in the process. India’s persistent food inflation, to take another example, is made worse by an antiquated system of storage and transport that lets somewhere between 25% and 40% of some crops spoil before they reach market.”

Jubak sees a shift “from a global economy where China and other developing country economies were exporting deflation in the form of a larger and larger supply of cheaper and cheaper goods to one where prices are rising on the shelves at Wal-Mart.”

Looking ahead he sees inflation inflation in the developing world pushing “still higher in the next few months as the governments of these countries fight internal battles over where to strike a balance between growth and inflation. That’s likely to produce the kind of over-heated growth that will keep commodity prices rising but also generate fear about the eventual crackdown to depress performance in developing world financial markets, especially China’s.”

Jubak predicts that eventually the central banks of the developing world will get serious about curbing inflation and that it “will be painful, deeply painful, but brief—a matter of quarters rather than years.”

He advises commodities investors to get out before China, Brazil, India, et. al. get serious about their inflation under control.

Read more about what Jim Jubak says about China exporting inflation.

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