Never forget, though, that while we slate central bankers for encouraging unsustainable consumer borrowing – actually the truth is a little more complex.
Sure, in countries such as the UK, US, Australia and Spain, consumer borrowing has gone through the roof, and saving has been far too low, but in other countries, such as Japan, China and the OPEC nations, saving has been too high.
On a global scale, maybe consumption has possibly been too low – and maybe that is the fundamental reason why we have had such low inflation for the last decade or so.
On the other hand, this saving has fed investment – which has led to inflation in the commodities market. Remember that economist people say ignore oil when thinking about underlying inflation. In fact, the fall in the price of clothes and furniture is just as much down to factors beyond the control of central bankers as the rise in the price of oil is beyond their control.
High saving across the world has also fed consumer borrowing – leading to inflation of asset prices.
If we ruled the world, this is what we would do. Make consumption in China rise, and savings elsewhere fall.
Well, maybe we do rule the world – for this morning, news emerged to suggest that decree of ours was obeyed.
During the January to February period, retail sales in China were no less than 20 per cent up on the year before.
As you know, Chinese inflation is soaring too, it reached 8.7 per cent in February. It seems that part of the solution to China’s inflation would be to allow the Yuan to go up in value – making foreign goods more attractive, in turn enabling those economies in the West suffering from massive balance of trade deficits to start exporting some more.
Mind you, Capital Economics still reckons Chinese inflation is down to one-off hikes in the cost of food. Apparently non-food inflation was just 1.6 per cent.
It seems to come down to your view of the world. Are the recent rises in the price of food down to permanent and structural changes, and therefore likely to continue as demand rises? Or are they just down to bad luck with the weather?
Either way, the rapid rise in Chinese retail spending has to be welcomed – if the trend continues, one of the deepest imbalances in the global economy could be fixed. Mind you, as ever when things like this happen, there will be some nasty pain en route – and sometimes we wonder if the credit crunch is a sign of deeper forces working.
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