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Saturday, July 09, 2011 11:17 AM

China's Inflation Hits 6.4%, Food Prices Soar 14.4%; Chinese Central Bank Downplays Soaring Costs; BRIC Inflation High Across the Board

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Those looking for price inflation can easily find it if they open their eyes and look at the much beloved BRICs, Brazil, Russia, India, and China, as opposed to where everyone is looking, which is to say the United States.

MarketWatch reports China’s June inflation rises 6.4%

Monthly data released by the National Bureau of Statistics of China showed the consumer price index for June climbed 6.4 % from the same period the year before. Many economists had expected the rise to be between 6.2% and 6.4%.

That increase compared with a 5.5% jump in May, which was itself the fastest rise in CPI since a 6.3% increase in July 2008.
Chinese Central Bank Downplays Soaring Costs

Like all central banks react when they don't want to react, PBOC chief suggests not to overreact to inflation
China's central bank chief Friday suggested markets shouldn't over react to a large rise in year-on-year inflation for June, saying that month-on-month figures are a better gauge of prices.

"It's better to use month-on-month inflation (data)...seasonally adjusted and annualized," said People's Bank of China Gov. Zhou Xiaochuan.

"In China, we use the year-on-year inflation figure without seasonal adjustment: that's the problem," Zhou told a financial conference. "You always try to think about the base effect."
Nonsense From Zhou

As long as you are comparing the same month to the same month a year ago, there is no price comparison distortion. The "base effect" is zero. Month by month comparisons without seasonal adjustments are flawed.

Middle Class Inflation Woes Hit Russia

The Financial Times reports Inflation severs Russia’s material comforts
While the collapse of communism in the 1990s destroyed most Russians’ standard of living, something resembling a middle class began to appear again between 2000 and 2008, as real incomes doubled and oil revenues kept wages and pensions well ahead of inflation.

However, since the onset of the economic crisis in 2008, real incomes have been stagnating as wages have been frozen – while inflation gallops on.

Since the onset of the economic crisis in 2008, which saw gross domestic product fall 8 per cent in 2009, wages in most sectors have been frozen, while inflation, temporarily damped by the crisis, has now picked up. In the first quarter of 2011, real wages fell 2.9 per cent, driven by higher inflation than expected.

While official inflation for the year sits at a little more than 9 per cent, many think this statistic is fudged. “I think the real inflation rate is being understated by official statistics,” says Sam Greene, a professor of political science at the Moscow-based New Economic School.

Over the past five years, official statistics show prices rising 62 per cent but most Russians feel much greater increases.

“The middle class is splitting in two,” says Mikhail Chernysh, head of the social mobility section of the Russian Academy of Sciences Institute of Sociology. “One part is in danger of falling out of the middle class, while the other part is gaining.

“Getting into the middle class is very difficult in Russia and once you are there, it is hard to stay.”
India Hikes Rates 10 Times in 16 Months to Combat Inflation

Asia Times reports India Maintains Inflation Fight
The Reserve Bank of India (RBI), the central bank, has raised interest rates for a record 10th time in 16 months, grimly continuing its efforts to choke inflation by checking money flow.

But belt-tightening, the RBI has decided, remains one of the critical ways to tackle inflation, which rose to 9.06 % in May, up from 8.66 % in April.

"High input prices, rising finance costs and global uncertainties are adding to negative sentiments ... and a high interest rate environment will most certainly put brakes on new investments," Associated Chambers of Commerce and Industry of India president Dilip Modi told Agence France-Presse.

RBI governor Duvvuri Subbarao is unimpressed by such pleas, declaring in a statement that the immediate priority was to kill inflation, not to feed growth.
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Credit Crisis in Brazil

On July 5th I posted an email from a Brazilian reader regarding inflation in Brazil. Please see Credit Crisis in Brazil: Consumer Loan Rates Hit 47%, Defaults Soar, Debt Service Tops 50% of Disposable Income for details.

Otavio, my Brazilian reader thinks Brazil's currency, the Real is "extremely overvalued". I agree for the reasons he gave.

Mike "Mish" Shedlock
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