What do you think about China's PPI >CPI?
Thanks Tiger for your question.
Well producer's cost has to come to consumers until and unless it is absorbed by some other external agency, say gov. I dont think this is what is happening in China. Its just a matter of time when CPI will start reflecting rising PPI....
But we also need to keep in mind the basket used to calculate PPI and CPI. May be the items such as food grains, which form a very integral part of CPI and is also given high weightage in the calculation of CPI isn't showing very high rise in prices or may be gov is taking appropriate measures to keep their prices down. Thus this can be another reason for lower CPI.
Well Harsha also pointed out an interesting observation. Well the reason might b this:
If you see China's growth. it has grown in and around particular areas and provinces (like mushrooms in different parts usually east coast). This is because of their SEZ policies which particularly pushed those areas to prosperity. But they av an interesting policy of having export oriented SEZs. Thus these SEZs get all sorts of tax breaks (almost zero taxes) but they can only export the produce and they cant sell it in the domestic market. This is because the gov doesnt want to cannibalise the domestic markets. Thus if they want to sell the same product in China, they have to pay very very high taxes which then means higher prices for consumers. This can just b one reason but i seriously dont think tht chinese currency is over valued.
