We discuss the inflation causes in the world it is not difficult to understand why China is causing global inflation it’s a simple effect of inflation that comes from the Supply and Demand rule in economics

Inflation Causes (background)

China’s most recent GDP numbers show that the economy grew 3.9 percent year on year, which beat analyst expectations, but fell well short of China’s full-year target of 5.5 percent, which is already the lowest target they’ve set in thirty years.

China Import Demand:

China’s real import demand is down about 8 percent since the lockdowns began. China’s exports however continue to rise, providing foreign consumers and businesses with the goods they need.

How China’s real estate collapse?

China’s real estate collapse combined with the strict zero-Covid policies has severely reduced consumer activity in the country. In dollar terms, spending on imports is up 0.3 percent from a year ago, but if we take foreign exchange and rising prices into account,

The real estate slowdown in China has been quite severe. Looking at the first nine months of this year, property sales in China are down 22 percent, new construction starts are down 38 percent, and property investment has fallen 8 percent.

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Inflation Causes in China?

Policymakers in China have loosened key policy rates and taken measures to ensure the completion of construction projects, many of which have been stalled due to the financial stress Chinese property developers have been under.

One of the global benefits of China’s slowdown this year, or at least the timing of that

so from here, you would understand some 

• Inflation Causes in us.
• Inflation Causes in India.
• Inflation Causes in the world.
• How US current inflation is affected by China

The slowdown has reduced Chinese demand for things like metals, energy, food, and capital goods which are cutting into the inflation pressures in the rest of the world at a time when inflation has become quite a problem.

Inflation has been more subdued in large Asian economies like China and Japan over the last year than in the rest of the world.

Of course, there is severe inflation in places like Sri Lanka and Pakistan, and there are inflation pressures in India, Bangladesh, and other Asian economies too.

Before the pre-pandemic, China was a huge consumer of commodities. China consumes around two-thirds of the world’s iron ore and coking coal – which are necessary for steelmaking.

How much copper does China consume?

China consumes around 43 percent of the world’s copper – which is an important metal used in manufacturing and construction – things like wiring and pipes for example. Lower demand from China (of course) means lower prices, so Iron ore has fallen to its

The lowest level in over two years is due to lower global steel demand.

The economy reducing its demand the most being China. Copper prices have been in decline this year too, and this is despite the vast amount of copper that should be needed for the clean energy investments in solar, wind, and grid upgrades that have been announced in the US and Europe.

It’s not just metals or construction materials either, China’s slower growth has reduced the demand within the country for energy to.

How electricity cause inflation?

Electricity consumption, which had been growing at a rate of around 7 percent per year before the pandemic, is now growing at just 2 percent.

Consumer spending in China is now more than 10 percent below the pre-pandemic trend. Smartphone shipment is often seen as a forerunner of China’s consumer spending. Between January and August this year, there has been a 23% decline in Chinese smartphone sales year-over-year.

So, people in China are tightening their belts and spending less on all sorts of goods.

Though people may not notice it, this lower demand from China has offset a lot of the strain on global energy supplies since Russia invaded Ukraine. So, for the first time in decades, China’s huge trade surplus is helping workers outside of China, by helping to combat inflation. So this means if they are producing less, the expensive one built inside the country itself would start to sell.

What are the Causes of inflation worldwide?

Historically, the imbalance between China’s massive exports and small imports hurt The global economy, as it meant that workers in other countries struggled to earn a living as they had to compete with cheap imported goods, and couldn’t make a living selling goods and services to Chinese customers, who were just not spending.

Now that inflation is a much bigger concern than underemployment around the world, China’s reduced consumption, with ongoing production of goods that are needed worldwide is helping the global economy and reducing the pressure of inflation in most countries.

Now,  (of course) a slowdown in Chinese imports, while helping to reduce global inflation will not be great for businesses or countries that generate income exporting to China.

Inflation Causes in Australia:

The Australian economy for example – is very reliant on China. Fifteen years ago, only fourteen percent of Australian exports went to China. By 2021, 42% of Australian exports were going to China, which was after China had introduced tariffs on various Australian imports due to political tensions between the two countries.

This year, China is only buying 29.5 percent of Australian exports, which is the lowest level in seven years. 

Some of this is due to the trade tensions between the two countries, and some of it is due to the fall in the price of iron ore – which is Australia’s biggest export, but it is primarily due to the construction slowdown in China. They simply buy and use less of the raw materials produced in Australia. Now, the Chinese sanctions on Australia possibly even benefited Australia, as they forced Australian companies to focus on other markets before the Chinese slowdown began. China was also unable to wean itself off of Australian iron ore, despite its desire to do so that is how China’s inflation Causes trouble in Australia.

The fact that China is still such a big buyer of Australian goods, does mean that Australia is still vulnerable to any further slowdown.

Xi Jinping’s goal

is to make China a mid-level developed country over the next ten years.

Achieving this would require the Chinese economy to grow at a rate of around 5 cents per year. That would be real economic growth and growth is not driven by malinvestment. According to Ruchir Sharma at Rockefeller Capital Management, the underlying trends of bad demographics, heavy debt, and declining productivity suggest the country’s overall growth potential is around half of that rate.

According to Rucher Sharma at Rockefeller

Capital management points out that achieving that potential of 2.5% growth over the next decade – which is well below what many people expect – could still be quite a struggle. If China did achieve that level of growth, it would be the first large middle-income

country to sustain 2.5 percent GDP growth despite a decline in the working-age population, which began in 2015. It would be difficult for China to just throw more capital at the problem. Total debt in China has reached 275 percent of GDP, and a lot of that debt funded wasteful investment in the property bubble.

Sharma points out that China has to invest $8 to generate $1 of GDP growth,

which is double than a decade ago, and the worst of any major economy.

The final source of potential growth:

How  Productivity help in growth?

So, the final sources of productivity which are the Inflation Causes is productivity. Countries can offset a shrinking working-age population through large improvements in labor productivity. With a more productive workforce, companies can afford to pay fewer workers more money and remain profitable, and that higher pay then translates into higher domestic consumption per worker.

China’s productivity growth averaged 15.5% from 1995 through to 2013 when its working-age

The population reached its peak. Productivity growth then slowed to an average of just 5.7% in recent years. So, China’s productivity growth rate is decelerating when it needs to speed up.

Productivity isn’t about how hard workers work; it is about how much output is generated per labor hour, so it is more driven by investment in capital, technological progress, better management practices, and human capital development.

A lot of the easy gains in worker productivity have already happened in China. China managed to industrialize at a speed never seen before. I have pointed out before on this channel that China poured more concrete in three years than the United States poured in the entire 20th century. Britain industrialized over 7 generations and China in one. The future growth for China will be a lot more difficult than the growth they achieved in the 1990s when almost any project invested in China provided good returns.

The current administration in China also seems much less focused on business, inflation, and the economy than some of the leaders in the recent past.

Conclusion

For now, China’s economic difficulties have an upside for the rest of the world, at least in the short term. China’s lower demand for commodities and energy is reducing inflation pressures in the rest of the world.

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