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on Inflation for the Country China - Research Paper Example
Finance & Accounting
Pages 4 (1004 words)
China Inflation: Causes, Effects, And Solutions China Inflation: Causes, Effects, And Solutions Introduction Historical data from 1994 to 2010 show that the average Chinese inflation rate was 4.25. The country’s inflation rate reached a record high of 27.70% in October 1994 and an historical low of -2.20% in March 1999…
Causes of Higher Inflation in China Evidently, the higher inflation in China can be attributed to numerous factors. According to Yu (2011), the Chinese government’s increased currency control ended up in an artificial decline of foreign exchange rate of the Yuan and this adverse situation in turn amplified manufacturing and export business activities. Macroeconomic theories clearly state that decline in the real value of currency is the most severe impact of higher inflation. At the same time, the cheaper Chinese currency made imported food items and energy resources unaffordable to the country’s people. Economists strongly argue that the county’s unprecedented development rate have added to a severe demand pull inflation. In china, unbridled growth of consumerism together with rampant rise in population continues increase in consumer demand. Probably, the increasing consumer demand in turn would significantly augment business activities and ultimately the cost of production. As a result, firms are compelled to charge higher prices for their products that would be unaffordable to lower and medium class customers. Many of the economists and corporate business magnets are of the belief that the value of the Chinese Yuan would improve in near future. ...