Official Chinese Inflation Has to Be Understated

Chinese official inflation statistics released yesterday show that overall consumer prices were up 5.4%.  This is the highest level since July 2008.

Analysis: I have been saying for quite some time that China is in the midst of a massive asset bubble – comparable to the one experienced by the First World in 2008-2009.  I have also long stated that the Chinese government manipulates its statistics to show favorable results.  The manipulation is obvious as reports on the ground conflict strongly with what the communist authorities relay officially.

So now we hear that inflation is at its highest level in almost three years.  For the Chinese government to say that means that it must be very bad indeed.  Since November many official actions have been undertaken to rein in inflation.  From raising interest rates, to preventing banks from making certain types of loans, to punishing folks who lend money unofficially.  The Chinese are desperate to regain control of their economy.  Clearly more austerity measures will be put in place.  More importantly, clearly Chinese inflation is a big deal.

When will the bubble burst?  If is very hard to predict such things.  For all we know the bubble has already started bursting but because of Chinese government manipulation of facts, and limited access to all of the geographic regions of China, we would have no way of really knowing.  The real question is: when will the Chinese government acknowledge that the bubble has burst, or if it has even has at all?  Tough to say.

Importance grade: 6; while it may seem as if the Chinese asset bubble popping would be a big deal for the rest of the world, I am convinced that the Chinese asset bubble popping will have very little effect on the rest of the world.

Jason