Commodities get green light as China ignores inflation

Playing With Fire

The Chinese government failed to act aggressively against their growing inflation problem. The failure to act seems to suggest their political will or perhaps they’re failing to grasp the looming danger this inflation problem poses for the Chinese economy. Oh sure, the Chinese government promised to do more to combat inflation that came in on the consumer side at a blistering 5.1% and on the producer side at an even more disturbing 6.1%. Yet China's lack of courage is a green light to start buying commodities again. The market is going to lose confidence in the already shaky China central bank.

As China's inflation rate soared to a two year high, the Chinese government failed to act decisively. Promises are nice but some wonder what it is going to take. China is getting intoxicated with its growing economic power and the bubble it is creating. When the bubble is expanding it feels so good that you hate to let even a little air out of it. Of course if they don't, we know how this story will end, we know that it will not be pretty. The reason the Chinese failed to act is they said that a lot of the inflation price came from food prices which increased by a whopping 13.3% and by temporary and seasonal factors and they believe will likely slow inflation back to 5% or lower in December. They believe that some of the steps they have taken to ease feed cost by releasing government reserves of grain should help put downward pressure on prices.

Yet to blame the increase on food prices seems to suggest that the Chinese government is in denial. Residence costs and utility costs increased by a hefty 5.8 percent. The Chinese are blinded by their manipulation of their own currency and fear that any devaluing of that currency even the perception by increased rates seems to suggest a lack of confidence in their own people and their own economy. Now with China's data underestimating its real inflation numbers, it is possible that we may see the bubble burst faster than they imagine.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


Comments
comments powered by Disqus