Tags: SocGen | China | Not | Central | Banks | Controls | Inflation

SocGen: China, Not Central Banks, Controls Inflation

Wednesday, 27 Apr 2011 08:59 AM

Do the central banks really control prices, like they think they do? Not according to Brian Hilliard, chief economist of French investment bank Societe Generale in the United Kingdom.

As noted by the website Business Insider, Hilliard’s thesis is that China has been calling the shots on inflation for some time now, whatever the denizens of the Federal Reserve and European Central Bank might believe.

Blame “the China Price,” the inexorably lower price of industrial goods thanks to China’s rapid industrialization. The cost of imports fell steadily and the Western banks believed that they had inflation licked.

Now the reverse course is under way, according to Hilliard, and commodity prices are rising thanks to Chinese demand, which means rising prices for Chinese export goods — a double whammy for broke governments in the developed world that have become dependent on cheap oil and cheap imports.

“These factors are combining to create a potent force for rising inflation pressures around the world. This is why we are seeing the acceleration of import prices in the U.K., for example,” Hilliard writes, according to the Business Insider.

bernanke200.jpg
Fed Chair Ben Bernanke
(Getty photo)
U.S. Federal Reserve Chairman Ben Bernanke is set to speak to the press Wednesday following the bank’s latest vote on interest rates.

While the Fed isn't likely to raise rates, it is expected to reiterate its position that the massive $600 billion Treasury buying spree known as quantitative easing (QE) in place since August will end on schedule in June.

"Every asset class is waiting to see how the Fed policy will affect them over the next couple of months. If the QE stops, will both stocks and commodities sell off and will the dollar and bonds go up as a recession looms," Michael Franzese, head of Treasury trading at Wunderlich Securities in New York told Dow Jones Newswires.

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Do the central banks really control prices, like they think they do? Not according to Brian Hilliard, chief economist of French investment bank Societe Generale in the United Kingdom. As noted by the website Business Insider, Hilliard s thesis is that China has been...
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