Michael Lombardi, financial expert and lead contributor to Profit Confidential, reports that China, the second largest economy by gross domestic product (GDP) in the world, continues to show a deepening economic slowdown; and according to Lombardi, there is now another obstacle for the Chinese economy-inflation.
"Inflation in the Chinese economy has become an issue that could escalate in economic problems for the country," notes Lombardi. "The Consumer Price Index in China rose by 2.0% in August 2012 from August of last year, the big problem is food prices-they rose 3.4% in August from August 2011."
In the article "Perfect Economic Storm for China: Slow Growth and Rising Inflation," Lombardi states that if inflation in China keeps rising, the government's intentions to ramp up the economy with monetary stimulus could be tempered.
Lombardi recalls the events of 2008, when attempts to boost the Chinese economy resulted in higher-than-expected inflation and a bubble in real estate prices.
According to Lombardi, China's central bank has already cut interest rates in both June and July to promote economic growth. However, Lombardi observes that the improvements from these rate cuts in the Chinese economy are yet to be seen.
According to Lombardi, Chinese industrial output rose by only 8.9% in August compared to 9.2% in July-the lowest growth since the May of 2009. Chinese exports are still in a slump, he adds, noting that they have only grown by 2.7% in August, compared to one percent in July.
"The increase doesn't amount to much when last year the export growth rate was over 20%," Lombardi points out.
Lombardi concludes by stating that any economic slowdown in the Chinese economy will affect the U.S. economy: "With the U.S. becoming one of the biggest export markets for China, the question arises: is the U.S. economy growing enough to give China the export market lift it needs to grow? The answer is: of course not."
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