It is not so much the reopening (yet) as the amazing amount of stimulus that has been and will be poured into the Chinese economy that raises the inflation risk.
From Asia Times, December 16:
Cost of everything from oil to food to to consumer goods will spike everywhere as China reopens from zero-Covid lockdowns
Euphoria over a “cooldown” in US inflation ignores a vital variable: how China’s reopening process is about to propel commodities prices even higher.
This cooldown argument is fast gaining currency following reports that showed prices rose just 7.1% in November year-on-year. US Treasury Secretary Janet Yellen has hit the news circuit to make the cooldown case.
With the most aggressive Federal Reserve tightening cycle since the 1990s and the inflation-reduction scheme enacted by US President Joe Biden’s Democratic Party, Yellen says prices are going to continue surprising to the downside.
But not if China’s Covid reopening trade has anything to say about it. The sheer speed of President Xi Jinping’s pivot away from “zero-Covid” lockdowns is about to reintroduce the power of Chinese demand into global goods markets.
As 1.4 billion Chinese move around more and spend more freely, the cost of everything from oil to food to airfares to lodging to consumer goods everywhere will soon experience one of history’s greatest demand-pull inflation surges.
“Surely it will push up global inflation if China reopens fully,” says economist Iris Pang at ING Bank. “There will be more international travel, more sales, more production.”
In a recent report, economists at the New York Federal Reserve argued that “what happens in China does not stay in China.” They conclude that “specifically, we find that expansionary credit policies in China lead to notable increases in commodity prices, global production, and GDP outside of China driven by higher Chinese demand.”....
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Our takeaway? For now watch the Chinese liquidity pump and the Chinese Credit Impulse.