China's Inflation Could Threaten the Global Recovery
By Scott Boyd
On February 8th, the Peoples Bank of China raised the one-year lending rate twenty-five basis points to 6.06%. This marked the third rate increase in four months and most observers believe more interest rates hikes will be necessary for China to keep a lid on inflation.
The latest figures from Chinas Statistics Bureau indicate that consumer prices jumped 4.9% in January compared to the same month one year ago. The actual result was less than the expected 5.3% but Januarys outcome keeps intact a long string of monthly price increases, underscoring the risk of inflation in the Chinese economy.
In addition to raising rates further in the coming months, Chinas monetary authority will likely continue the trend of forcing lending institutions to increase the percentage of funds to be held in reserve. This effectively removes liquidity from the money supply, leaving financial institutions with a smaller pool
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