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China and the Inflation Threat

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There’s smoke…China’s GDP advanced 11.3% on a year-over-year basis in 2006:IIQ, mostly thanks to vigorous exports and very strong investment spending. China’s trade surplus reached a record $174 billion (annual rate) in May, and investment spending this year is advancing at a 30% clip. The strong second-quarter showing brought economic growth to 10.9% for the first half of the year. Economists, who earlier projected that the country’s real economic growth would advance only modestly more than 9%, are ramping up their forecasts for this year to roughly 10 1/2%. Rapid money growth is accommodating this brisk expansion. The standard broad measure of money, M2, is reportedly exceeding its 2005 growth rate this year and significantly overshooting the 16% target set by the People’s Bank of China.

Suggested citation: “China and the Inflation Threat,” Federal Reserve Bank of Cleveland, Economic Trends, no. 06-08, pp. 08-09, 08.15.2006.

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