Red Light, Green Light, Who Cares?

Interesting piece in the FT on Chinese inflation, and the persistent divergence between inflation as measured by the CPI and the GDP deflator. (The differences between price indices is something we could pay more attention to in general.) But I was struck by an odd juxtaposition. First, we get a quote from some analyst saying that the GDP deflator is overstating inflation:

In the last three months of 2010, the deflator made inflation out to be 7.3%, compared with 4.7% using the CPI. ... if the 7.3% inflation the GDP deflator calculates is an overestimation, this has to mean that real GDP growth is higher than the 9.8% Beijing officially clocked for the last quarter—which is dangerously high, strengthening the fear of overheating China bears have been raising of late.

 Then we get another analyst saying no, the deflator is understating inflation:

Our guess is that the GDP deflator which probably averaged over 10% last year is now running at around 11%. The natural implication of that, of course, is that real Chinese GDP could be much lower than officially stated. And that inflation, as a result, is indeed a much greater concern for authorities than is currently being implied.

So if inflation is lower than the official number, that's a reason to step on the brakes. And if inflation is higher than the official number, that's a reason to step on the brakes too.

 It's almost like support for austerity aren't really motivated by concerns about inflation (or interest rates). But what else could it be?