Inflation

Inflation in China hit a 15-month low in December but still remained stubbornly high at a time when policymakers are bracing for a slowdown in the world's second largest economy. The nation's broad measure of consumer prices grew 4.1% last month from a year earlier. That's down slightly from the year-over-year growth of 4.2% registered in November. For the full year, inflation increased by 5.4% in 2011, well above the government target of 4%. The central government is hesitant to loosen monetary policy for fear of worsening inflation, even in the face of an economic slowdown.

A seasonal surge in consumption during the Chinese New Year holiday lifted China's inflation in January for the first time in five months. The country's consumer price index rose 4.5% from a year earlier, China's National Bureau of Statistics said Thursday, up from 4.1% a month earlier. Prices traditionally rise during the weeklong lunar new year holiday in response to the massive boost in spending on gifts, food and services. China has raised interest rates, bank capital reserve ratios and placed restrictions on the nation's property market in an all-out effort to drive down inflation, which hit a three-year high over the summer.

China's annual inflation rate fell to a 20-month low in February, giving policymakers room to ease lending at a time of tapering economic growth. “The inflation story is over, leaving [China's central bank] with fewer excuses not to step up its easing efforts, especially given a sharp slowdown in exports so far this year,” said Qu Hongbin, co-head of Asian Economics Research for HSBC, in a note to clients Friday. “Get ready for more steps toward policy easing.” Consumer prices rose 3.2% from a year earlier, down from 4.5% annual growth in January, China's National Bureau of Statistics said Friday.

About two years ago I wrote an article saying that despite the lack of evidence, and despite the near-universal belief among economists that it was not a problem, I was worried about inflation. My reason was that I couldn't see how the government could pay off the massive debt it was running up except by inflating at least part of it away. For this, I was widely ridiculed, and I'd like to take this opportunity to claim vindication. That is, I'd like to — but I can't. Inflation has been creeping up the last couple of years — from less than 2% to more than 3% — but that's still pretty low. Nevertheless, I double down: Barring a miracle, there will be a fierce storm of inflation sometime in the next few years, and it will wipe out a big chunk of the national debt, along with the debts of individual citizens and the savings of others.