Inflation

From The Economist:

"China's inflation rate has become one of the world's most closely watched numbers. Last weeks release showed that inflation rose to 4.9% in January, up from 1.5% a year earlier. The increase was smaller than expected, but has not quelled fears that as inflation creeps up the government will need to slam on the economic brakes. Some economists, however, believe that China should welcome higher inflation as a more effective way to re-balance its economy than a currency appreciation.

Wages are increasing at a faster rate - If higher inflation reflects faster wage growth, this will help China, not hurt it. Some of the ways in which inflation is thought to be harmful to growth, such as discouraging saving and investment, hardly matter in China, where both look excessive. Its biggest imbalance is too little consumption. When wages rise more slowly than productivity, an economy produces more than it can consume, resulting in a current-account surplus. If wages now outpace productivity, workers' share of the cake will rise, boosting consumption and helping to reduce China's external surplus.

GB