(Image source: USA Today)

BY GEORGE DUMONTIER

You're watching multisource business video news analysis from Newsy. 

Is inflation getting out of control?

That’s the concern after China raises interest rates for the third time this year.

Many analysts say the government is hoping to keep prices under control and avoid a dreaded market crash.
Economist Lynda Nazareth tells Business News Network what could happen if the Chinese bubble bursts.

“If you get the economy slowing too quickly or too much, then you have less demand in general, you have commodities down”
“Much more importantly It’s the whole world economy would slow with china which is the second largest economy in the world, now i don’t think we’re there, but it is certainly a risk.”

It’s a balancing act -- and not just for the Chinese yuan. The Financial Times reports,


“There is a broad consensus among analysts thatthe Chinese economy is slowing,...But the timing is crucial – too fast and there is a credit/banking/growth crisis; too slow and inflation spreads, followed by social protests and the possibility of an even bigger credit/banking/growth crisis later.”

The International Business Times thinks China may actually be understating its inflation, and suspects a market bubble may be growing.


“We know in America all too well what happens in too much credit is extended when asset values are inflated and wage growth sustainability is not a reality. Pop goes the bubble.”

Stocks fell after China’s announcement with some fearing a Chinese decline could lead to an even sharper global economic slump.
With U.S. growth already waning, many were hoping China would fuel the global economic machine.
Economist Carl Magnus tells Bloomberg -- that can still happen.

“The instantaneous market reaction is understandable, but if you look at whats going on in the chinese economy, clearly there are pockets of relative weakness in automobile sales, retail sales, property transactions, but the investment side of the economy is growing like gangbusters still.”
“If there is a problem in the global economy, I don’t think China will be responsible for it.”

Perhaps -- but a Marketwatch blogger asks the question everyone wants to know:  Is this China’s last tap on the brakes before taking off -- or is this a downward spiral just getting started?

“....with inflation at its highest level in nearly three years, driven by higher food prices, China’s population is clearly under stress.... the late spring slide in commodity prices appears to be temporary. Wednesday’s rate move won’t be the last time China has to act in this cycle.”

Transcript by Newsy.