Inflation in China

Patrick Chovanec says:
The standard measure of inflation, the Consumer Price Index (CPI), includes both food and fuel in the “shopping basket” of prices it measures. Food, however, is often subject to “price shocks” — sudden spikes in prices — because of temporary shortages due to weather or similar supply disruptions. Oil, which most industrialized countries are required to import, is even more subject to volatile price fluctuations due to war, unrest, environmental disasters, or any other number of other causes that are completely external to the management of the domestic economy. As a result, many economists argue that it is better to look at “core CPI” — CPI minus the food and fuel component — for a better measure of the underlying inflationary pressure in an economy.
I would argue that food, and possibly fuel, should not always be discounted quite so easily, especially if inflationary demand is pushing up prices broadly — as I think is happening in China today. However, it’s important to note that recent spikes in oil prices, due to the unrest in Libya and other Arab states, is distinct from China’s homegrown inflation problem and is something beyond Chinese policymakers’ immediate control (although it’s equally fair to note that the broader pressure behind rising oil prices more generally is being driven, in large part, by the growing appetite of China and other rapidly emerging markets for oil imports — a demand which may be inflated by China’s expansive monetary policy).
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