China: Sluggish Expansion but On-top Inflation

Inflation has always been a part of every economy on Earth. No economy on earth can actually avoid inflation but it is always a subject to control. Few countries on earth are such that if they would not have been gone through the phase of inflation, their policies could not have been moderated as per the need and development efforts would not have been fruitful. These days, China is supposed to be on the top of the emerging markets and undoubtedly, the growth of China has lured almost all types of investors on Earth. China is also one of the major players of the commodity market. After this praise of a country, like it said even the powerful sun has to set, China is also facing the tough hassle given by the inflation to its economy. For China, there has been an average of 6 percent rise in the food prices and the overall consumer prices have gone up by 3.2 percent compared to the same period last year.

The current inflation situation in China demands of a tightened up monetary policy but then, in that case, she has to compromise her economic growth rate. It has been a million-dollar question for China to choose between the alternatives.  Few anticipations in the market suggest that it is only a short-term hurdle basically emerged out of the Lunar New Year spending but in the back of the brain, there is always a thought to not to let it be hectic enough in future. Because the expenditures by the consumer during the celebrations were high, the market got fabricated with the paying capacity of the general public leading to the inflation scenario. But the arguments on the other side of the coin are there is still some time to check if the economy gets back in its direction and the tightening up can be done after a short wait.

The growth rate of China was a matter of pride for so long, we would be surprised enough to know that 7.8 percent growth rate of China in 2012 was the weakest economic performance of the country in the recent times.  Because of the counter condition in the economy, China has started taking few measures to bring back its economy to a comfortable state. Some of the measures taken by the economy are: cutting the interest rate twice last year, bringing down the cost of borrowing for the consumers and businesses which basically intend to promote the bank loans in the projects. Also, to promote lending in the economy, the reserve requirements for the commercial banks have been brought down.  Monetary policy in current state mat bring in the scenario of much higher growth in Consumer Price Index (CPI) than 3.5 percent which would again be out of expectation for the Chinese economy. Very high inflationary influence has been given by the land, labor and agricultural products & services in the country; therefore it is going to be heart-throbbing job for the Chinese policy makers to taste this bitter cup of tea.

Chinese influence to the commodity market remains a major anticipatory challenge for the investors!