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Chinese Snow to Cause More Than Just Delays

January 4th, 2010 Michael McDonough

China’s ‘50-year’ snow storm could cause more than just delays in the country; the last time the country was hit with a similar storm food inflation spiked. In the past Chinese food prices have had significant influence over the country’s CPI. It is still too early to measure the full and long-term impact of the storm–if any–but we should monitor local news for early indications. A sustained run-up in inflation could increase tightening rhetoric amongst Chinese authorities, and increase the probability of eventual RMB appreciation. If investors believe the Chinese government is more likely to tighten, then more likely then not equity markets will come under pressure.

I wrote this in February 2008 while living in China, “Starting late January and ending in February China faced a barrage of disastrous winter weather, affecting nearly every aspect of the economy, including crops. This is particularly relevant given that food prices have been the main cause of Chinese inflation.” -http://fiateconomics.com/?p=11 (It may be old, but it also explains the dynamic between headline and food inflation in China)

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