Aug. 7, 2008

Inflation in China Set to Decline

With the RMB appreciating against the WCU2000, there is little doubt that inflation on the Mainland is going to decline rather noticeably in the next few months.

The RMB is now one of the strongest currencies around. Imports are getting cheapter; domestic demand is easing--especially investment; exports growth is declining.

The economy is going to slow down markedly. World commodity prices are easing. Pressures for further monetary tightening are easing.

There is of course a chance that the RMB could stop appreciating against the USD. But in the foreseeable future it is unlikely for the RMB to weaken against the WCU2000. Accordingly, quite independently of the course of the US dollar, I still expect inflation on the Mainland to slow down considerably.

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