Disturbing Report on Inflation from China
Last time I mentioned the fact that China is experiencing inflation. In fact, China's inflation continues to heat up, but we don't hear too much about it here. Why not? Well, it's just not something that matters to us, right?
On the other hand, maybe it should. First of all, if inflation really does take hold in China, it means the prices of everything will go up and stay up. And if that happens, how long will it be before the Chinese government is forced to continue to raise workers' wages? (They've already started doing that.) And if workers' wages go up even more, and prices continue up, and wages go up yet again, how long will it be before all those "cheap" Chinese goods we've all counted on to stay cheap start getting even more expensive?
And if cheap stuff gets more expensive - meaning prices go up for lots of the regular stuff we buy - doesn't that mean that inflation will start heating up here?
Well, maybe we'll just get our cheap stuff from other countries, right? Not so fast. It seems inflation is heating up in emerging markets across Asia - so much so that it's having a big (and bad) impact on the social fabric of many emerging market countries. (You can read more about this here.)
And here's some flavor for what's going on right now in China from someone living and working in China. I don't know this person, but it comes from an interesting and relatively reliable source, Zerohedge.com.
Has some worldwide upward spiral of inflation begun? The Chinese government has taken measures to minimize or control in some way what even they have recognized as an unacceptable level of inflation. Optimists we've read believe these measures will be effective in the coming months. We'll have to wait and see. One thing I know is that if the Chinese are relying heavily on price controls and subsidies, history show us these work for a while, but only ultimately make matters worse. In any case, what's happening now in China isn't something we can afford to ignore.
On the other hand, maybe it should. First of all, if inflation really does take hold in China, it means the prices of everything will go up and stay up. And if that happens, how long will it be before the Chinese government is forced to continue to raise workers' wages? (They've already started doing that.) And if workers' wages go up even more, and prices continue up, and wages go up yet again, how long will it be before all those "cheap" Chinese goods we've all counted on to stay cheap start getting even more expensive?
And if cheap stuff gets more expensive - meaning prices go up for lots of the regular stuff we buy - doesn't that mean that inflation will start heating up here?
Well, maybe we'll just get our cheap stuff from other countries, right? Not so fast. It seems inflation is heating up in emerging markets across Asia - so much so that it's having a big (and bad) impact on the social fabric of many emerging market countries. (You can read more about this here.)
And here's some flavor for what's going on right now in China from someone living and working in China. I don't know this person, but it comes from an interesting and relatively reliable source, Zerohedge.com.
- Inflation is HUGE. In every way and is so noticeable in daily life that we talk about it, well, everyday as everything we buy is rapidly increasing in price. The thing is, is that it doesn't affect my life that badly, except for my rent that increased 10% (which was low, compared to the city-wide 20% increase in 2010), because I'm in a high income level, for local Chinese standards. For example, a bowl of dumplings I typically get for lunch has gone from 3rmb ($0.44) to 4rmb ($0.59). That's a 25% increase and happened in one day. Again, clearly in USD terms you can see that doesn't bother me, but for the average Chinese, it kills them. Veggies have gone up 60% in some cases. In such drastic instances, portion sizes are decreasing rapidly to keep prices level. Got a salad the other day from a western restaurant I got to a lot and my friends and I agreed it was about 1/2 the normal size. As I'm sure you've heard, the gov is putting out price controls and subsidies, which is dumb because it will only delay inflation and the subsidies are only encouraging more inflation.
Has some worldwide upward spiral of inflation begun? The Chinese government has taken measures to minimize or control in some way what even they have recognized as an unacceptable level of inflation. Optimists we've read believe these measures will be effective in the coming months. We'll have to wait and see. One thing I know is that if the Chinese are relying heavily on price controls and subsidies, history show us these work for a while, but only ultimately make matters worse. In any case, what's happening now in China isn't something we can afford to ignore.
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