Study shows China's inflation does not threaten US and Japan (2/20/2008)

There is no strong empirical evidence that inflation in China has a significant impact on inflation in the US and Japan. According to a study in China and World Economy published by Wiley-Blackwell, the recent rise in Chinese prices is unlikely to affect Japan or the US. Conversely, there is evidence that the inflation in the US has had some impact on Chinese inflation.

This study "Does China Have Inflationary Effects on the USA and Japan?" uses several econometric approaches to assess the link between China, Japan and the US, and evaluates whether China can export inflation or deflation to the US or Japan.

Lead author, Mr. Tarhan Feyzioglu, Resident Representative - China, International Monetary Fund says, "With Japan and the US being two of China's largest trading partners, transmission of inflationary pressures between parties is not unusual. However, our empirical analysis suggests that Chinese prices have a fairly small and temporary impact on U.S. and Japanese prices. This is partly because imports from China still make up a small portion of all goods bought in the US and Japan. China would need to dominate the international trade on a larger scale before any noticeable effects on inflation are felt."

The study also suggests that because recent Chinese price pressures have been limited to food prices and not manufactured goods, the effects are likely to remain contained in China. Nevertheless, the study shows that global commodity prices are important for all these countries, and thus the recent surge in these prices would create upward pressure on inflation in all these countries.

Note: This story has been adapted from a news release issued by Blackwell Publishing

Post Comments: