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Sunday, 14 June 2009 |
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A release by China's central bank last Friday showed that China's money supply had been kept increasing. At the end of May, China's broadly defined money supply (M2) stood at 54.82 trillion yuan, up 25.74% from last May. The narrowly defined money supply (M1) totaled 18.2 trillion yuan, up 18.69%. Currency in circulation (M0) summed to 3.36 trillion yuan, up 11.24%.
As can be seen from the chart below, even though M0 increased 11.24% from last May, the total amount of circulated currency has been relatively stable. It is the M1 and M2 that have shown steady growth from the beginning of last year. Ever since the international financial crisis occurred, the speed of M1 and M2 has accelerated from last summer.
China's CPI and PPI fell 1.4 percent and 7.2 percent in May year on year respectively. So even though money supply has been increasing fast, the threat of inflation is still not a worry yet, at least not the eminent one, since another part of the money supply story is the velocity of money circulation, which is much more difficult to quantify.
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