Richard Gottlieb

Chinese Inflation Watch
May 13, 2008

Chinese inflation is robust and very much in the news. It’s interesting, therefore, to read news reports from around the world, systhesize them and determine, when taken together, what it all means.

Let’s start in the US with an article on Bloomberg.com. It reports, in an article entitled “China Raises Bank Reserve Ratio as Inflation Surges,” that prices rose 8.5% in April.   Most of the increase came from rising food prices.

Bloomberg went on to say: “Inflation quickened from 8.3 percent in March. . .  It's the fastest [inflation] in the world's 10 biggest economies and compares with 5.04 percent in Brazil and 4 percent in the U.S.”

Heather Scoffield, economics reporter for the Canadian ReportonBusiness.com, reassures us. She quotes Derek Holt, vice-president of ecomics for Scotia Capital as stating:  “China's inflation rate is set to taper off . . .because its growth will slow in the coming year and some recent anti-inflation measures are becoming effective.”  Holt goes on to say that food and energy will continue to inflate in North America but that there will be a drop off in demand as “…the rest of the consumer basket will face disinflationary pressures because of faltering demand.”

We know that Chinese exports of toys are way off from last year. According to China Daily, toy exports did rise 3.3% but that is down from last years 22.9% growth rate. The article goes on to states: “The growth of exports from China's labor-intensive industries is slowing, and the trend is set to continue, the Ministry of Commerce said yesterday.”

What can we make of all this? Chinese inflation plus the reduction in the number of toy factories, which reduces competition, should accelerate prices that American companies pay to make their toys. On the other hand, reductions in demand may put some downward pressure on that trend. In short, prices are going up but maybe you have more negotiating power than you think.

Posted by Richard Gottlieb on May 13, 2008 | Comments (0)