Complete Finance Blog

Chinese inflation is decelerating [0]. This suggests that whatever further real CNY appreciation occurs is likely arise from nominal appreciation, over the near term.

The news, not completely unexpected, is that inflation is falling rapidly.

This can be taken two ways: first, the economy is cooling rapidly; second, the fiscal and monetary authorities have more scope for stimulative action should growth further slow.

What are the implications for the Chinese currency’s real value? Despite the shrinkage in the Chinese trade balance, continued global rebalancing requires continuous CNY appreciation. (According to Chinese statistics, the 2011 trade surplus of USD155 billion was 14.5% smaller than the 2010 balance).

The Chinese indices are available only up to November; the BIS real index is almost back to the crisis peak, when the CNY followed the USD in its rise.

What is interesting is how much the nominal and real have diverged at the end of 2010 (as pointed out in this post), and over most of 2011. U

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