China’s Economic ‘Sugar High’ Could Amplify US Inflation

Unexpected Slowdown in Chinese Factories Could Have Implications for US Economy, Study Finds

In July, there was an unexpected slowdown in the output at China’s factories, which could have implications for the US economy according to new research. Recent changes in credit allocation in China are also contributing to the shift towards manufacturing. With bank lending moving away from the property sector and towards manufacturing, there is a notable increase in new “green loans” as China’s clean energy sector grows. Estimates suggest that new manufacturing lending in China could make up a significant portion of total lending in the near future.

If these investments in manufacturing are successful, and credit growth in China rises to 12% over the next two years, it could impact prices in the US. The increased demand from a manufacturing boom in China would lead to higher costs for producers, which would eventually be passed on to consumers. The implications of this scenario could result in a sustained increase in inflation in the US over the next two years.

Researchers point out that conventional wisdom suggesting that a manufacturing-led expansion in China would be disinflationary for the US may not hold true if increased Chinese production places pressures on global commodity markets and the manufacturing supply chain. As such, policymakers should take into account these potential pressures when making decisions about their economies.

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