Trade Targets Diverge on Inflation Fighting

The central banks and governments for a pair of key targets in small business exporting took very different paths this week in fighting growing inflation. China’s central bank, concerned with its economy getting significantly more overheated than it already has, tried again to pump the brakes this week by raising interest rates. It’s a decidedly different track than is being taken in Brazil.

The People’s Bank of China announced it would raise its rates by 25 basis points, the second time this year it has opted to make such a move. The move was perhaps more surprising in its timing, very close to the last rate hike, than its inevitable appearance. China is contending with, among other things, an inflated housing bubble not too different from the one that propped up and eventually destroyed U.S. economic growth during the middle of the last decade. 

Brazil, acknowledging inflation is a real issue within the growing economy, in essence said it will a take a sort of wait-until-next-year approach to addressing the problem. Officials in the administration of new President Dilma Rousseff, who has a history of being leftist and pro-labor, this expressed concern and/or disinterest in making more significant efforts toward slowing down booming economic growth there. The central bank predicted it will usher in monetary policy tightening sometime in 2012 to curb inflation though, if it is playing catch up, may have to tighten significantly more than it would if addressing the issue this year.

“In fairness to the Brazilians, they do at least recognize the problem and have taken action (albeit with limited results) by raising interest rates twice since late December...policymakers in Brazil are challenged on a variety of fronts,” said Economist Byron Shoulton, of FCIA Management Co., a speaker/panelist at FCIB’s I.C.E. Conference in Chicago.

(Note: More on the varied approaches to inflation-fighing by China, Brazil and the U.S. in this week's eNews, available Thursday afternoon. For more information on or to register for the I.C.E. Conference, visit www.fcibglobal.com).

Brian Shappell, NACM staff writer

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