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China Needs Higher Inflation

Summary:
Some Chinese economists have attempted to assuage inflation fears by noting that the recent surge in the producer price index is unlikely to translate into a sharp uptick in consumer prices. In fact, this is precisely what China should fear. BEIJING – Recent price increases in the world’s two largest economies have unnerved global markets, which have become accustomed to the low inflation – and even deflation – that has prevailed for decades. But, at least in China, a little inflation would not be a bad thing. The Paradoxes of the Bangladesh Miracle Mamunur Rashid/NurPhoto via Getty Images Can We End the Pandemic? PS

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Some Chinese economists have attempted to assuage inflation fears by noting that the recent surge in the producer price index is unlikely to translate into a sharp uptick in consumer prices. In fact, this is precisely what China should fear.

BEIJING – Recent price increases in the world’s two largest economies have unnerved global markets, which have become accustomed to the low inflation – and even deflation – that has prevailed for decades. But, at least in China, a little inflation would not be a bad thing.

In the United States, massive government spending during the COVID-19 crisis has raised fears of a financial reckoning, and recent price data are reinforcing these concerns. The consumer price index (CPI) surged by 4.2% year on year in April – the fastest growth since 2008. Moreover, the monthly increase accelerated to 0.8% in April, from 0.6% in March, although the rate fell back to 0.6% in May. The producer price index (PPI) has also risen, to 217.5 in April, up from 185.5 a year earlier.

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