China and Inflation

China has raised its rates again. This is the fourth time in a year and it is a clear indication of strong inflationary pressure. As China Daily states:

After the hikes, the one-year deposit interest rate will climb to 3.25 percent while that of the one-year loan interest rate will reach 6.31 percent. Analysts said the move indicated that the central bank was enhancing efforts to ease stubborn consumer price increases. The consumer price index (CPI), a main gauge of China's inflation, jumped 4.9 percent in February from a year earlier, exceeding the government's full-year target of 4 percent. Food prices, which account for about one-third in the basket of goods used to calculate China's CPI, surged by 11 percent in February from a year ago.

There is clearly strong upward pressure in China and this will most likely get reflected in US prices, having the effect of a strong inflationary trend.

This is worth watching closely.