Exporting Inflation from China
Speaking of Inflation, you can actually see the official inflation rate of China here:
Some of the actual data: Food inflation is running 18.2% year-over-year, led by meat and poultry (49%) eggs (23.4%) and vegetables (22.5%).
Health care in China was low (2.3%) -- hey, its a communist state, and those costs are fixed by the Central government.
Also low: Booze and cigarettes -- 1.7% year-over-year, (mostly because they do not carry the new ultra-premium vodkas we have here).
Some oddities:
Transportation & communication were negative. Why are these two lumped together? I strongly doubt that the price drops in telecommunication equipment offset the rise in Crude Oil and gasoline prices. Oh, wait, those prices are also fixed by the central planners. (Communism defeats inflation? How long can that last for?).
Residences gained 4.3%.
~~~
There is a sad element to this: Why is it that Communist propagandists at the National Bureau of Statistics of China are at least as truthful about price increases, if not more so, than we are here in America . . .
Friday, September 28, 2007 | 10:46 AM | Permalink
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Last month, we discussed Exporting Inflation from China. Time liked the post so much they more or less ran it in the magazine: China's Next Big Export: Inflation Demand from China, along with other fast-growing emerging economies, has driven up the pri... [Read More]
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Comments
Actually, I think you're misreading the chart. It's actually much worse than that. It says "The same month last year=100". So food inflation is actually 18.2%, led by a whopping 49% inflation is meat and poultry. Total inflation was 6.5%.
The right column is the confusing part, but this is the average for the period Jan-Jul and is also set to 100 for the same Jan-Jul period last year.
~~~
BR: Yeah, i caught that just as I clicked publish.
I used the same spreadsheet I used for BLS data, and inadvertantly compared the left and right columns.
I'll fix it up top . . .
Posted by: F | Sep 28, 2007 10:58:27 AM
Bernanke, Mishkin et.al. at the Board are already laying the foundation that rising inflation in China and in their exports will not effect CPI here in the states. They have stated that imports from China have had very little effect of 'low inflation' here (its all about Fed cred they say), thus preparing to discount any price increases too come.
Seems reasonable to presume that Board members have an idea of what is to come, and are getting all of their ducks in a row to keep the curtain drawn.
Posted by: RJ | Sep 28, 2007 10:58:46 AM
You ask a good question Why is it that Communist propagandists at the National Bureau of Statistics of China are at least as truthful about price increases, if not more so, than we are here in America
It goes with that lack of trust post.
As long as Joe 6 Pack has his cable he seems to be pretty happy, and unconcerned about much.
Posted by: bucky katt | Sep 28, 2007 11:05:50 AM
Are there two planes of inflation? The first, BLS inflation statistics (the governments political statistics.) Second, the real world inflation statistics (millions of products and services that have been going up at twice the rate of inflation.) Now add in life’s major cost items---food---health care---education---housing---energy. It is more likely that inflation for most average Americans has been 6% per year not the BLS fabricated 2% to 3% per year. Who does the inflation affect the most? Primarily those people in the lower 80% of income and wealth holders. Why? Simple, those in the upper 20% of income and wealth holders are the ones who hold inflation hedges, land, homes, stocks, and other types of investments that insulate people from the destructive nature of inflation.
Posted by: gunthestops | Sep 28, 2007 11:09:22 AM
Wow. No wonder they are so tight on birth control. They can barely feed 1.3 billion people as it is!
Posted by: New Yorker | Sep 28, 2007 11:09:59 AM
The rural/urban split is also interesting, particularly for food. Much of the gains from export growth are accruing to urban areas. With rural areas now seeing inflation hitting them harder than urban areas, especially considering food likely makes up a higher proportion of spending in rural areas, you'd think there are going to be some increasingly unhappy campers in the Chinese hinterland.
Posted by: Estragon | Sep 28, 2007 11:21:16 AM
How do you export inflation from somewhere?
Posted by: DavidB | Sep 28, 2007 11:23:10 AM
Joe six pack doesn't even know what inflation is. He's too busy setting up his fantasy football lineup.
Posted by: Josh | Sep 28, 2007 11:33:59 AM
China, doesn't have as many special interest groups, or at least none that can say a whole lot. Now I am no intellectual, but I did happen to browse a report once in the college library at Tulane, that suggested that perhaps a simi-command economy could actually out perform a capitalist one. Ever since that day I have wondered if the Chinese Government happen to get their hands on it...
Posted by: justin | Sep 28, 2007 11:34:50 AM
And we are the ONLY country where inflation is not a problem so that we can LOWER our interest rates.
Funny how the entire rest of the world( with the exception of Japan) looks the exact opposite of what we claim to be happening here.
BTW Bear Stearns bond issue was just too coincidental yesterday. "we need how much cash by tomorrow?"
Was the line uttered on thursday morning after a well-placed rumor made it's stock worth about 7% more....
Pretty nimble for a firm that just reported it's worst earnings in 10 years.......LOL
Ciao
MS
Posted by: michael schumacher | Sep 28, 2007 11:39:26 AM
The Chinese middle class is still relatively small when compared to the entire population but, unlike the US, it has grown by leaps and bounds to the point that much of the food inflation can be attributed to the ability of more Chinese to afford higher quality protein
That protein is already more expensive than rice and other grains as a 'simple' ecological reality: remember your trophic pyramid from 10th grade biology? It takes approx 100 lbs of grain to raise 7 lbs of chicken or egg (that amount of feed will only raise about 4 lbs of cow or milk btw).
China has become a net importer of grain as a partial result of this trend but the increasing use of potable water for industry and the concomitant loss of that water for agricultural purposes is another part of the story.
The US has been an important 'heat sink' for the Chinese economic engine but that state of affairs is unique, coupled as it is to the rise of major new economic powers (of which China is only one), and therefore it can not continue; either the stress will cause the system to break or the main actors will no longer need the system as it exists now and will change it. JMO
Posted by: RW | Sep 28, 2007 11:44:46 AM
Hey Barry, what's wrong with your "comments" register? It doesn't seem to show the right amounts at given times...or is that something on this end?
Posted by: justin | Sep 28, 2007 11:55:36 AM
As for medical being low, I expect that this is hidden inflation. If China corresponds to the pattern of the rest of the "ex"-communist world, official medical prices are low, but if you want to get anesthetic with your operation, or to actually have that operation, you pay extra. Many drugs, etc., are officially free, but for the hospital to 'find' them costs money. These payments would likely not show up in the official inflation figures. On the bright side, US figures may actually be more accurate about inflation for medical services).
Posted by: Greg | Sep 28, 2007 11:56:55 AM
Daveb: When you import goods from another place, you also import the pricing of those goods, right? Or you can factor that when you purchase imported goods with USD, you are exporting US inflation, right? So maybe we are actually the ones exporting inflation with our dollars to purchase their goods/labor, which rise in price because of the value or lack thereof of our dollars, and China therefore export goods to us at a higher price, which might cause us to print more money to buy them.... Chicken & the Egg debate, I think.
Posted by: dukeb | Sep 28, 2007 12:09:36 PM
Since the Yuan is pegged to the dollar, aren't the same commodities (grain/meat/fuel) inflating over here at the same rate as they are in Chinese urban areas?
Posted by: Rich_Lather | Sep 28, 2007 12:41:58 PM
Rich_Lather, I don't believe so because there unit of currency is going to have a different intrinsic value, do to local tradable values i.e. PPP - purchasing prices parody - the big mac index.
Posted by: justin | Sep 28, 2007 1:20:08 PM
Barry can offer an idea? Why not, because the list of replys gets long, have a system whereby the readers vote after each reply, according to some algorithm derived system that puts value on each reply that we read. Like: have a series of radio buttons that deal with content, context, and perhaps "quality idea/thought "here-in" (there in). In this way each one of us would be contributing...which makes readership even more desirable.
Posted by: justin | Sep 28, 2007 1:27:08 PM
PS: It would be hilarious (in a Kafka kind of way) to discover that China's inflation numbers tell us more about actual US inflation than the US numbers. Thank goodness for globalization, or we'd really be left in the dark!
Posted by: dukeb | Sep 28, 2007 1:29:36 PM
You don't need 'official' inflation numbers. Just keep a couple of receipts from your day to day shopping at regular intervals and then compare them to one another every now and then. The truth becomes that much easier to see: Eggs, Milk, Pork, Bread, Gasoline, etc all flying higher. Medical costs, tax bills and tuition. All of it. We all see the 'real' numbers because they're unavoidable...
Chinese politicians will eventually realize (when angry rural mobs start making a real mess) that massaging the inflation numbers can only work for limited duration...
TheFinancialNinja
Posted by: Ben Bittrolff | Sep 28, 2007 1:47:41 PM
BR: Thanks for the laugh, "Why is it that Communist propagandists at the National Bureau of Statistics of China are at least as truthful about price increases, if not more so, than we are here in America "
Heck, Barry, with 1.5B people in a backward people to think they can even measure CPI is a joke better yet take the percentage figures to a decimal point.
Certainly you are just writing in a fit of pique?
Posted by: Norman | Sep 28, 2007 1:49:49 PM
As one with firsthand experience in both China and the Chinese medical system (2001-2006 in Hangzhou, Harbin, and Shanghai) I can tell you that the inflation number for medical costs does NOT reflect true costs.
Firstly, the prices are set by the government so that the price of medical care is often below its true cost to the state. I paid well under $100 for an MRI in 2005.
Secondly, one must pay "hong bao" (literally red envelope) to have quality care. It is monies given directly to the Doctor before service to insure quality treatment. Having a C-section? It will cost an additional 10 to 20 K rmb to make sure that your scar is minimal.
Thirdly, the state may set prices, but it often makes up some of the difference by over prescribing drugs. Got a cold? Get an IV. Need a pill? You will be prescribed three boxes...
In short, the official inflation rate in no way reflects the costs the "man on the street" is paying for healthcare.
Posted by: Peterpaul | Sep 28, 2007 1:50:18 PM
Merely an illusion dear Boy... merely an illusion.
You can ratchet-jaw all you want about inflation... get your panties all up in a bunch... Talk up the 'Gartman this,' and the 'Gartman that'... yeah, yeah, yeah.
Knock yourself out, but there's no significant e-x-p-e-c-t-a-t-i-o-n-s for s-u-s-t-a-i-n-e-d inflation... not at the moment anyway.
This is a bond market scared shitless of deflation:
http://finance.yahoo.com/q?s=%5ETNX
And when, and if, the shit hits the fan, the Big Mouth Bombastic Euro central bankers will be singin' out the other side of their mouths, where their teeth used to be. They'll be singin' "Euro my ass to thee" and wondering who it was that said they didn't need Norte Americano consumption to fuel their moment in the sun.
Every dog has its day.
Don't worry... I'm not runnin' and I'll be right here if anybody wants a piece of me.
--
You talking to me?
http://www.youtube.com/watch?v=XJNnDCOK_gw&mode=related&search=
Posted by: Eclectic | Sep 28, 2007 1:55:32 PM
http://finance.yahoo.com/q/bc?s=%5EIRX&t=6m&l=on&z=m&q=l&c=
Ooooooooo!!!!... Sooooo frightening!... I won't have to get a Halloween mask this year. I'll just print and cut this out and tape it to my forehead.
Posted by: Eclectic | Sep 28, 2007 2:03:31 PM
I am amused how people never give up on this deflation talk. For seventy years they have been wrong.
But hey why get in the way of a good story!?
Posted by: Fullcarry | Sep 28, 2007 2:15:27 PM
duke,
You can still only export to and import from. The minute you export from you are simultaneously in your nation and the other nation at the same time.
The only other way to do that, I suppose, is to make the velocity of your money so fast that your ROI arrives in your bank account before you even hit the send button. If the fed ever figures out how to do that(and I'm sure they're working on it) we are all toast.
Don't worry though because that will probably drive up labor costs and thus be disallowed as a practice
Posted by: DavidB | Sep 28, 2007 2:19:46 PM
