Apr 15, 2011

China, three graphs of the day

Oil prices
I just had a conversation about the Chinese economy, specifically about why inflation is increasing recently. It is related with the increases in the prices of oil (graph 1), but also to the expansive monetary policy in China, this is increasing the CPI (graph 4). Why is China expanding the money supply at rates of 20 to 25%? They want to feed the high rate of economic growth (close to 10%), but also they want to maintain the fixed exchange rate. Given the high influx of US (proxy by FER, graph 2), in order to maintain the fixed exchange rate they are printing more money. Graph 3 shows a comparison with the US money supply.
Source of graphs

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