Inflation is Dead, Says Chinese Premier

Never ask the barber if you need a haircut, so they say. Chinese premier Wen Jiabao has declared inflation dead in a guest column for the Financial Times. The whole article is worth a read, but he saves his best for inflation:

There is concern as to whether China can rein in inflation and sustain its rapid development. My answer is an emphatic yes. Rapid price rises pose a common challenge to many countries, especially other emerging economies and China. China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked. The overall price level is within a controllable range and is expected to drop steadily. The output of grain, of which there is now an abundant supply, has increased for seven years in a row. There is an oversupply of main industrial products. Imports are growing fast. We are confident price rises will be firmly under control this year.

Phew. That alleviates my concerns.

I happened to be reading the latest edition of Grant’s Interest Rate Observer as Wen Jiabao landed in my inbox. Continuing on with the short-China themes of his previous edition, Grant has a somewhat different view to the Chinese premier’s:

An artificially low exchange rate is inflationary. An artificially set of exchange rates is likewise inflationary. Plastering an economy with cheap, state-allocated bank credit could be inflationary in the short term, deflationary in the long term. Anyway, it’s unhelpful.

No prizes for guessing which camp I’m in.