WEEK 7 Contemplating Controversy

     I found a Chinese article which is related to deflation versus inflation in terms of Chinese economy in 2005. This topic was one of the most important controversies during that year because the debating prices is exactly to argue the future economic tendency. If the economy is inflation, it means the money supply will be bigger than the money demand so that the currency will be devaluated. However, if the economy is deflation, currency in circulation will be decreased, people will obtain less money, purchasing power will become smaller so that prices will be lower. 

       In addition, long-term deflation will lead to higher unemployment and economic decline. Followings are the basic differences in views that cause the controversy. Some people thought China's consumer price index will be positive from negative in the third quarter of this year and money and quasi money supply will be lower than 10% in the end of year. Their reasons are basically the same. There are two aspects which support the prices increasing next year or next two years in China. The first one is the food shortage, which leds to increase the food price; another one is the fast increasing price in the real estate field. Nonetheless, food supply was more sufficient this year and real estate’s price decreased because of country's regulative policy. At the same time, in the past two year, excess investments would cause excess production so deflation would happen because demand would be smaller. But some people were skeptical with this topic. They deemed that domestic investment rebound momentum is still very fierce, which would drive the rise in producer prices(PPI). Now, PPI’s effect has transferred to CPI so that inflation would happen. The second reason is that the central bank predict M2 will rise 18% this year, the money supply is adequate, may only lead to inflation pressures.

      All in all, the discussions above are both sides of issues and the basic differences in perspective which trigger the controversy. 

Work Cited:

Economics Reference News Editorial Department. "The Biggest Economic Debate in 2005". Finance. People News. 2005. Web. Oct.18.2013

Link:

http://finance.people.com.cn/GB/1045/3992343.html