China is seeing the highest price increases in over two years, and this has officials worried. While the official consumer inflation rate was 4.4% for October, a 10% rise in food prices is having a huge impact on poorer households. The domestic media is filled with stories of hoarding by both producers and consumers.
Inflation Nation: Chinese banks stop lending to real estate developers
November 15, 2010
If you’re one of those who believes Canada is on the brink of the housing bubble, this should put some things into perspective. China has been flailing around trying to find any way to slow the housing boom that will inevitably lead to a massive decline in value.
Beijing has tried a few things. They increased downpayment requirements and hiked rates last month. It’s most recent attempt? China’s major banks have suspended credit to real estate developers. Next year, the fund set aside for lending to developers may be decreased by up to 20 per cent.
Rising prices are not only dangerous because of the potential for a housing bubble collapse, but also due to high inflation. Purchasing power is eroding in China.
According to the Wall Street Journal:
So it’s not just real estate– China’s entire economy seems to be suffering from…dare I say…hyper inflation?
Think of it this way: if prices for food are increasing 10 per cent every month, wouldn’t you buy your non-perishable items now instead of paying 10 per cent more in a month? I would. That’s the issue, if everyone panics and buys now, then the economy could freeze up. It also deters foreign investment because the value of China’s currency will decline significantly due to inflationary pressures.
It’s a bit of a mess over there, to say the least. But then look at North America in the 1980s or Argentina…all the time. Or Germany after they had to pay reparations. Hyper-inflation happens. The question is: what’s a Communist dictator to do?