NFLATION in China is a subject of considerable interest and serious concern to all Allied Nations, inasmuch as it might so affect the Chinese war economy as to delay considerably a large-scale counteroffensive from this vital base, thereby prolonging the war. Lack of reliable information has given rise to much speculation regarding the subject, such speculation being based largely on the superficial evidence of price movements. The conclusions thus drawn naturally have involved considerable misunderstanding of the Chinese economy. This situation is not conducive to full cooperation between China and its allies. It is essential, therefore, that an objective and factual picture of inflation within Free China should be presented.