Chinese Inflation: Raging Bull or Paper Tiger?

A recap of Dr. Enzio von Pfeil's appearance on CNBC's Worldwide Exchange on Wednesday 11/21.

• Rural inflation is running 4x faster than urban inflation.
• Inflation has two parts: food and non-food. Food inflation is driven by the weather and by supply issues, including agricultural policy. Non-food inflation is driven by the Central Bank, and is the result of "too much money chasing too few goods". In discussing how The Economic Clock works and thus makes/save you money, this differentiation of what drives inflation is crucial to your pocket book!
• But the only thing driving both inflation rates is food inflation, particularly prices of fresh fruit and vegetables. Non-food inflation is tame.
• Within the context of The Economic Clock™, such commodity-driven inflation cannot beget the traditional Central Bank tightening. This means that it is pointless for China's Central Bank to tighten in order to create an "excess demand for money", as "too much money" is NOT what is fanning inflation.
• What is fanning food inflation is: the weather, rising global commodity prices and, of course, poor agricultural policies in past years. For instance, some years ago the government decided to give farmers more subsidies to grow grain. So, the farmers naturally cut back on the acreage of food oils. Guess what, with the prices of edible oils rising globally (look at Malaysian plantation stocks, for instance!), such prices have shot up in China too.
• Nothing that the Central Bank can do about this.
• Indeed, the ideas that China is overheating and that China's growth is threatened by the U.S. are riddled with contradictions:

First, China is NOT overheating. Yes, The Economic Time™ in China is characterized by an excess supply of money and by an excess demand for goods. But, non-food inflation remains tame, and this is the only inflation that China's Central Bank can bring under control by creating an excess demand for goods. (Besides, the government cannot afford to tighten: the mandate is to create jobs, not to fight food prices).

Secondly, how can one seriously believe in that wish of decoupling when, in the same breath, people get worried about a US slowdown depressing China's and indeed all of Asia's exports to America. Things are not so "different" this time!

• Indeed, we recently moved America back to a "strong sell" and have advised clients what to do about China.