The economic impact of China’s rise on the rest of the Asia-Pacific region is very visible – in trade, for example, and foreign direct investment. But according to an International Monetary Fund report released Thursday, some of the hidden effects may be just as important.
The IMF’s Asia-Pacific Economic Outlook estimates that China exports more inflation to the rest of the region than is often assumed. For every 1 percentage point increase in Chinese inflation, the increase in Asia-Pacific countries is 0.25-0.5 of a percentage point – not an insignificant number for states already battling inflation.
The report argues that the real danger for regional inflation is an up-tick in Chinese output driving commodity prices up. It notes that a 1 percentage point increase in Chinese output can raise global commodity price inflation by about 5 per cent and that the Asian-Pacific region is especially vulnerable to commodity price increases – because food and energy make up a large proportion of average daily spending.