Global Inflation

Chinese Vice Premier Li Keqiang addresses the opening ceremony of the Second Global Think Tank Summit in Beijing, capital of China, June 25, 2011. (Xinhua/Pang Xinglei)

BEIJING, June 26 (Xinhua) -- Chinese Vice Premier Li Keqiang on Saturday warned the risk of a worldwide inflation while the world strives for an economic recovery.  


Facing a common challenge of inflation, all countries should increase the coordination of their macroeconomic policies to ensure economic growth while reining in inflation, he said at the Second Global Think Tank Summit currently held in Beijing.

Within China, inflation has remained stubbornly high despite the government's efforts to cap price rises.


Click to enlarge

NOTE:  these figures are based upon 3rd quarter 2011 data

 India, China, and the United Kingdom lead the global community with the US in 4th place with 3.8% which is high considering our current economic slowdown.  There are 14 countries that have inflation higher than 8.9% with Venezuela leading the world at 25.8% and Pakistan (the home to terrorists) at 11.99%.

Even though the US is raising Social Security by $38/month (first COLA in 3 years), it may be too little too late if inflation begins to escalate as it has in other parts of the world, especially if China's Vice Premier is correct.

Inflation under 2% annually is necessary to promote price stability and sustainable growth! ! !  With the US currently above 3% almost 4%, a favorable outlook is questionable.

What causes inflation?
1.  Inflation can happen when governments print an excess of money to deal with a financial crisis.

2.  Inflation can happen when production costs increase. 
Production cost increase due to:
an increase in labor costs - which means, as workers demand higher wages, the company then passes those increased costs along to the consumer - thus creating inflation.

3.  Inflation can be caused by a large national debt.

4.  Inflation can be caused by an increase in Government taxes.

5.  Inflation can be caused by an increase in consumer spending.

6.  Inflation can be caused be a decrease in supply of goods to the marketplace.


Governments use monetary policies to increase or decrease the flow of money within an economy.  For instance, they lower taxes to increase money and raise taxes to decrease money.  If consumers buy at a rate faster than suppliers can supply, then we have a shortage and inflation.  Another way to look at this is, if we put all the unemployed people to work, their productivity might not be enough to maintain an adequate supply versus consumption resulting in inflation.

The US cannot afford a fully employed workforce because of the increase in inflation that will result.  While this might seem incredulous, it is unfortunately true.  However, a gradual re-employment process is economically sustainable, providing the right people are hired into the right production jobs.

If, on the other hand, China's Vice Premier is correct in predicting an increase in global inflation, then the economic woes that American are currently experiencing will continue much longer than anticipated or desired.  The last barrier that a businessperson wants to face, is inflation.  Inflation keeps businesses in the US from being globally competitive.

If I were a global businessperson, I think that I would want global unemployment rates to remain at an 8-9% rate in the US for a little while longer.  As long as the US is hurting economically, foreigners can purchase more US dollars with the current exchange rates.  If unemployment is reduced and inflation stays around 3% or less, then, less US dollars can be purchased.  As long as the IMF (international monetary fund) keeps the US dollar as the international currency of trade, the comments here are correct.