China’s tamer inflation is not all good news

In April, inflation rose 3.6% according to the Chinese government’s National Bureau of Statistics, which is down from 3.8% in March.  This is a signal that the massive inflation in China is slowing down, which is an obvious relief to Chinese consumers whose wages have slowly increased but not enough to match the pace of inflation.  Inflation cooling off in China is good news but there were some bad news on the production front.  The pace of industrial growth in April  fell to 9.3% which is more than two percentage points lower than the March figures of 11.9%.   In fact all of the industrial sectors saw slowing growth, from light and heavy industry to state-owned facilities to even facilities that are funded by foreign countries.

The main concern the Chinese government had during the country’s rapid economic expansion was dealing with inflation. However due to the recent reports of their economy cooling off, efforts might be made to boost their own economy rather than tame inflation.   The pace of industrial growth is a signal of concern because in April the projected rate was 12.9%, with the real figures being more than THREE percentage points lower than the expected rate.   Weaker growth in industrial production along with less inflation can signal that there is a slowing in spending (production matches demand) and lending. The People’s Bank of China has focused this year on freeing up credit by gradually injecting funds into the money supply and cutting reserve requirements for banks.   The problem with this strategy is that it doesn’t help cool off inflation, in fact it increases the pace of inflation.  The goal for the Chinese government is f

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