Policy planners in Washington just caught a big break. They’ve been repeatedly trying to prod China to strengthen its currency — to no avail — but larger economic forces may yield the same benefit. Prices are starting to bubble up in China and, if you connect the dots, you can start to see myriad benefits for the U.S. economy and U.S. stocks. A slow build The Chinese economy has been able to grow at a rapid clip for more than a decade without any price pressures — a feat that is… Read More
Policy planners in Washington just caught a big break. They’ve been repeatedly trying to prod China to strengthen its currency — to no avail — but larger economic forces may yield the same benefit. Prices are starting to bubble up in China and, if you connect the dots, you can start to see myriad benefits for the U.S. economy and U.S. stocks. A slow build The Chinese economy has been able to grow at a rapid clip for more than a decade without any price pressures — a feat that is largely unparalleled in the modern era. Not anymore. Inflation in China started to perk up in 2010 and finished the year at a peak, with inflation now running close to 5%. (The official figure released by the Chinese government is a bit lower, while analysts at HSBC in Hong Kong think it’s a bit higher than that rate). The reasons for rising inflation are pretty straightforward and can be explained by the notion of “capacity utilization.” As is the case with any industry, prices remain stable as long as producers have excess production capacity. Read More