Inflation Rate in China

The Difference of Inflation Rate in China and United States

The actual inflation rate gap between China and the United States were much higher than the year-on-year CPI growth rate gap. Why China inflation rate is far higher than the United States? The first explanation, the level of inflation is usually associated with the economic output gap. The so-called output gap is the gap between the real rate of economic growth and the potential growth rate, if the actual growth rate exceeds the rate of potential growth, the existence of an overheated economy, which is often accompanied by higher inflation rate. If not, the second quarter of 2011, China's GDP year-on-year growth rate up to 9.5%, higher than the rate of potential output; during the same period, U.S. GDP growth of just 1.6%, lower than the growth of potential output in the United States. China's economy after the subprime mortgage crisis has returned to high growth path, while the U.S. economy is still plagued with many of the financial crisis, which led to the inflation gap China-US.

The second interpretation, the words of Milton Friedman economics, inflation is monetary phenomenon in the final analysis that inflation is usually related more currency. In fact, after the U.S. subprime mortgage crisis, China's central bank, the U.S. has implemented a very loose monetary policy. China (Yuan) credit of up to 9.6 trillion (Yuan) in 2009 and twice in the year 2008. The first Federal Reserve will reduce the benchmark interest rate to 0-0.25%, followed by the implementation of two quantitative easing, recently began to implement intended to reduce long-term interest rates for reverse operation. In fact, the currency narrows money (M1) and broad money (M2). The central bank typically only control the narrow money, broad money, credit is often the level of activity in the economy. U.S. subprime mortgage crisis, the highest monthly M1 growth in 39.0%, and year on year growth until M2 29.7%. Instead, the...