Economic Prediction....

The rising costs of raw materials in China are troublesome for the economy in China and also in the USA.

Producer prices rose 5.8 percent from a year earlier after climbing 5.6 percent in March, the Beijing-based National Bureau of Statistics said on its Web site. Crude oil costs jumped 37 percent and coal prices rose 26 percent.

''Sooner or later this will trickle down to consumer prices,'' said Qu Hongbin, a senior economist at HSBC in Hong Kong. ''That's the real fear. The government needs to do more.''

China needs to put the brakes on economic growth to reduce the risks associated with out of control inflation. Since the central bank, has only has very blunt and somewhat ineffective tools to tame the burgeoning economy, the situation will be very difficult to control. In the US, the Federal Reserve has a time tested and effective method to keep inflation down by raising interest rates and therefore lowering the demand for money.

My prediction.....

China will have a problem with inflation that will become increasingly more difficult to tame since the banking system is such a shambles.

Price increases will be passed onto to US consumers, the US Federal Reserve will continue to tighten monetary policy and aggregate demand for goods and services in the US will slow leading to an economic soft patch.

China will loosen the peg to the US dollar and this will prove to be a total disaster further weakening the fragile banking system. In reality, if they dollarize the economy, they will be better off since then monetary policy will be predictable and potentially reduce the speculative excesses threatening the economy.

Europe's economy will never recover.

So, there you go... an economic prediction for a Hong Kong pundit.

Kind of boring isn't it?