Economist: US exporting inflation to emerging markets

13:21, November 04, 2010      

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The United States is exporting inflation to emerging economies, said Sun Lijian, vice dean of the School of Economics at Fudan University, wrote in a recent article, which urged China to address the problem of excessive liquidity.

The U.S. Federal Reserve launched a fresh effort to support a struggling U.S. economy Wednesday, committing to buy 600 billion U.S. dollars in government bonds despite concerns that the move could do more harm than good.

Low interest rate and a weak dollar will lead to a higher inflation rate and real effective exchange rate in emerging countries, Su said.

"The developed countries' excessively loose monetary policies will hurt themselves as emerging economies will lose economic vitality, and the outlook for global recovery will be unclear," he said

The Consumer Price Index (CPI), the main gauge of inflation in China, is likely to rise 4.1 percent in October after accelerating to a 23-month high of 3.6 percent in September, according to the Bank of Communications forecast released on Wednesday.

"Oversupply of liquidity at home, surging food prices, rising labor costs and pressures caused by imported inflation would mean very limited room for the index to drop," the bank wrote in the report.

Sun wrote that great attention should be paid to expanding credit pressure in the banking system, and the public's reluctant decision to invest in the property market in the first-tier cities is due to the lack of a perfect social security regime and concerns about more inflation risks in the future.

"A flexible measure to guard employment and curb inflation will be the main tune for China's monetary policy in the early period of the 12th Five-Year Plan," he predicted.

By People's Daily Online


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