Inflation in the United States has begun to creep higher but is still in the 2 percent range. However, inflation in countries such as China, India and Brazil is significantly higher — in the 4 to 6 percent range. Does this mean we should be smiling rather than complaining? N.C. State University economist Mike Walden responds.
“It does put our inflation rate in perspective. We are seeing inflation … in these developing countries like China, India and Brazil moving ahead much more rapidly. One of the reasons is that, if you look at what is really going up in price — things like selected food items and energy — those items are much more relatively important in those developing countries. That is, they take up a bigger part of consumers’ budgets there than they do in our country. And so you are going to have a bigger transmission, if you will, of inflation through them.
“But there are other concerns here, Even if we say, ‘Well, yeah, we still have a low inflation rate compared to those countries,’ their inflation rates can sort of come back and affect us. Not necessarily in making our prices go up, but in terms of world trade. And one aspect that many businesses here in the U.S. are looking forward to is, if inflation is higher in, for example, China than it is in the U.S., that makes the value of our dollar somewhat more competitive with China, and we could see sales of our products to China improve.
“So China is actually moving very aggressively in trying to contain inflation. They are actually imposing price controls. We tried that in the ’70s, and it didn’t work. We will have to see if it does with China.”Category: Economic Perspective