Some believe that China is adding to global inflationary pressure. The opposite is closer to the truth: the large increase in China’s trade surplus over the past year signals that supply from China has risen far more than demand. Global consumer goods prices are rising in spite of China, not because of it. Admittedly, China’s rapid, investment-intensive recovery has been an important factor in the rise in global commodity prices over the past year – this is the key reason why China’s producer price inflation hit a 12-year high last month. But China’s contribution to the surge in global demand for consumer durables has been relatively small – unlike in many major economies, retail spending on goods in China is not particularly strong. And while dollar prices of goods from China have risen over the past year, these price hikes have generally failed to keep up with the pace of renminbi appreciation. In renminbi terms, export prices have been falling unusually fast.
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