Chinese Inflation Is Down, Sure, But Not Where It Matters

China yuan

Photo: AP Images

When China’s inflation number came out this morning, Beijing was pleased to tout the fact that overall, the rate had edged down from 6.2% in August to 6.1% in SeptemberUnfortunately, for them, it must be noted that the most dangerous inflation number remained in the double digits. In fact, it didn’t move at all.

Food prices inflated 13.4% in September, and in August they did the same. This means that the Chinese government’s attempts to bring down these prices are failing. In part because of a combination of summer storms and droughts that destroyed crops.

Why is this the most important measure?

Because it destroys “social harmony.”  It causes instability, the thing that the Chinese government most fears. Food riots were the start of the Tiananmen Square Riots, a sore subject for those in power.

The question is then, what will the government do? If they raise the minimum wage so that poor people can still afford to eat, food prices could rise even more.

And obviously raising interest rates, which they’ve done several times this year already, hasn’t helped either.

In short, no matter what anyone says, these numbers are nothing to celebrate. In fact they’re the government’s worst nightmare.

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