Manufacturers; Inflation Separates India And China

July 18, 2006

The difference between economic growth in China and India, still the hottest and most attractive countries for a variety of manufacturers, is inflation. Although consumer prices are rising in China's rapidly growing economy, they're not accompanied by ...

John McClenahen

The difference between economic growth in China and India, still the hottest and most attractive countries for a variety of manufacturers, is inflation.

Although consumer prices are rising in China's rapidly growing economy, they're not accompanied by the sound of galloping inflation. In April and May of this year, inflation as measured by changes in consumer prices, was up an average of 1.3% compared with April and May of 2005, notes Cliff Waldman, an economist at the Manufacturers Alliance/MAPI, an Arlington, Va.-based business and public policy research group. Inflation in February and March of this year was up an average of 0.9% compared with February and March 2005. "Chinese inflation has picked up somewhat in recent months, although the price picture remains quite benign," says Waldman.

Meanwhile, China continues to post extremely strong real economic growth. Although some forecasters expect China's GDP growth to slow to 8.9% in 2007 from 9.6% this year, "there is no indication of an imminent slowing," observes Waldman. Indeed, fixed investment, the key driver of growth in China, "appears to be accelerating in spite of significant government efforts to slow bank lending and investment demand," states Waldman.

"Benign" is not a word Waldman would use to describe inflation in India. The word "concern" is.

The consumer price index for urban non-manual employees in India increased at an annual rate of 5.3% in the final quarter of 2005 and 4.9% in the first quarter of this year, Waldman relates. "Clearly, the Reserve Bank of India will continue to raise interest rates to stabilize the rupee [India's currency] and to tame elevated inflation," he says.

At the same time, India's merchandise trade deficit with the rest of the world is growing, and, says Waldman, "markets appear to have growing concerns about India's capacity to finance its growing trade gap."

Waldman's bottom line: India's GDP growth is expected to slow to 7.2% during fiscal 2007 from 7.6% this fiscal year. Consumer price inflation will likely remain high, rising 4.6% this year and next.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.