May 19, 2024 11:26 pm
China’s Economic ‘Sugar High’ Could Amplify US Inflation

In recent months, there has been a noticeable slowdown in production at China’s factories. This unexpected development could have significant implications for the US economy, according to new research. Despite efforts by Chinese policymakers to boost their economy through investments in manufacturing, this move could potentially lead to an increase in inflation in the US.

The shift towards manufacturing in China is being driven by changes in credit allocation. Bank lending is moving away from the property sector and towards manufacturing, leading to a notable increase in new “green loans” as China’s clean energy sector grows. Estimates suggest that new manufacturing lending will make up a significant portion of total lending in the near future.

If these investments are successful, and credit growth in China rises to 12% over the next two years, it could impact prices in the US. The increased demand from a manufacturing boom in China would lead to higher costs for producers, which would eventually be passed on to consumers. This scenario could result in a sustained increase in inflation in the US over the next two years.

However, contrary to conventional wisdom, which suggests that a manufacturing-led expansion in China would be disinflationary for the US, researchers point out the potential pressures that increased Chinese production would place on global commodity markets and the manufacturing supply chain. As China continues to see growth in its manufacturing sector, these effects on global inflation cannot be ignored.

In summary, while Chinese policymakers may be making efforts to boost their economy through investments in manufacturing, this move could potentially lead to an increase in inflation

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