Rising Food Prices and Inflation in China

The Economist has a somewhat disappointing story about rising food prices and inflation in China ($). It essentially says that the rate of inflation is rising in China, and a major reason is that food prices are rising rapidly. Sadly, that is the extent of the analysis.



There is no mention of the fact that aggregate demand has been growing rapidly in China. And given a positively sloped short-run aggregate supply curve, it follows that prices would rise.



There is no mention of the fact that because China has tried to peg its currency to an exchange rate that is too low, export growth has played a major role in causing the rise in aggregate demand.



There is no mention of the fact that in an attempt to sterilize some of the net inflows of foreign currency, central banks have a tendency to increase their own money supply, thus creating overall inflationary pressures.



And there is no mention of the fact that globally, in part due to US policies concerning sugar, the demand for corn and other grains to produce biofuels has sky-rocketed, driving up grain prices around the world and hence affecting food prices everywhere.



Instead, the article smacked of typical MSM journalism. The Economist should be able to do better.