You may have noticed that the last year was mainly dominated by the high inflation that has been showing up all over the world. As a result, central banks have had to raise interest rates, but at the expense of the prices of risky assets like bitcoin. The Chinese economy has now begun to reopen, and according to many economists, this may be the answer to inflation.
Calm down inflation
The big question, of course, is how these economists envision it. After all, in general, reopening the economy means more demand for products and that puts upward pressure on prices. In this regard, you can say that reopening China after the closure of COVID-19 will cause inflation to rise even more.
Robin Xing, China economist at Morgan Stanley, explains that reopening China could lead to lower global inflation. this leads to According to Xing Specifically to standardize global production chains (supply chains).
Last year, many Western economies experienced the highest inflation rate in 40 years due to high energy and food prices. These prices have skyrocketed on the back of geopolitical tensions, the pandemic, and fiscal and monetary stimulus from many countries.
Remarkably, the Chinese government has managed to keep inflation at 2% in 2022, even though the country has a target of 3%. Next year, Xing also expects that inflation will not be a problem for China.
There is no inflationary pressure
Because of China’s reopening, there are some concerns about a potential return of inflation. However, if you ask Xing, these concerns are unfounded. It is true that the reopening of China means that there will be more demand for raw materials, but on the other hand, this demand in Western countries is currently declining.
In this regard, Xing does not expect that we will use more raw materials and consumption will not exceed a certain limit. “This means that reopening China will not lead to an increase in commodity inflation, especially since the United States and Europe are experiencing weak demand this year,” Xing said.
If Xing is right and the reopening of China leads to lower inflation globally as the world’s factory reopens, this could have a positive effect on Bitcoin. Ultimately, the now high inflation is prompting central banks to raise interest rates. Once that falls away, the party is likely to start again.
