Exporting Inflation from China

China_bls

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).

China_cpi

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 . . .

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  1. F commented on Sep 28

    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 . . .

  2. RJ commented on Sep 28

    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.

  3. bucky katt commented on Sep 28

    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.

  4. gunthestops commented on Sep 28

    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.

  5. New Yorker commented on Sep 28

    Wow. No wonder they are so tight on birth control. They can barely feed 1.3 billion people as it is!

  6. Estragon commented on Sep 28

    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.

  7. DavidB commented on Sep 28

    How do you export inflation from somewhere?

  8. Josh commented on Sep 28

    Joe six pack doesn’t even know what inflation is. He’s too busy setting up his fantasy football lineup.

  9. justin commented on Sep 28

    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…

  10. michael schumacher commented on Sep 28

    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

  11. RW commented on Sep 28

    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

  12. justin commented on Sep 28

    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?

  13. Greg commented on Sep 28

    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).

  14. dukeb commented on Sep 28

    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.

  15. Rich_Lather commented on Sep 28

    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?

  16. justin commented on Sep 28

    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.

  17. justin commented on Sep 28

    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.

  18. dukeb commented on Sep 28

    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!

  19. Ben Bittrolff commented on Sep 28

    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

  20. Norman commented on Sep 28

    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?

  21. Peterpaul commented on Sep 28

    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.

  22. Eclectic commented on Sep 28

    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=

  23. Fullcarry commented on Sep 28

    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!?

  24. DavidB commented on Sep 28

    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

  25. DavidB commented on Sep 28

    I am amused how people never give up on this deflation talk. For seventy years they have been wrong.

    But the fed pumpers promised when they brought in the thing that there would be an elastic money supply. Expanding and contracting. They just neglected to mention that expand would be 65 years and contract would be 5….and the contraction happened a long, long time ago.

    Now there are just two modes. Expand mode and panic printing repo mode

  26. jeopardy commented on Sep 28

    AFAIK, gas price is set periodically by the Chinese govt. They do follow the market price, but often with a lag and don’t rise / fall as much.

    I think the “hong bao” practice is not as common as someone has suggest earlier; but yes, that phenomenon is a consequence of the government “price-control”.

    BTW, hospitals may over-prescribe to earn extra kickback from the drug company. Various state insurance agencies actually crack down on that practice.

  27. dukeb commented on Sep 28

    daveb:

    “The minute you export from you are simultaneously in your nation and the other nation at the same time.”

    Isn’t that exactly what true “globalization” would entail? Reminds me of all those old westerns when an exchange would be made on the count of three–hand to hand–under mutual gunpoint. ;)

  28. Pool Shark commented on Sep 28

    Eclectic,

    Uh…

    you may want to take a second look at those bond yields…

  29. Fred commented on Sep 28

    Well, there’s an hour left for that “massive Hedge Fund Liquidation”.

    Lol

  30. justin commented on Sep 28

    Eclectic,

    For there to be deflation like you mention, the central bankers would have to tighten up more than a Nun during holy high-mass. When was the last time they did that? After the Weimer, excesses…hmmmm? You might be right, but not now!

  31. Estragon commented on Sep 28

    “‘The Senate’s swift action on the debt limit today helps to protect the full faith and credit of the United States and avoids creating unnecessary uncertainty in the US Treasuries market,’ Paulson said”

    So now we can be absolutely certain there’s no limit on the amount of treasuries the US will sell. Have to make sure there’s no unnecessary uncertainty on that. Hmmm.

  32. Estragon commented on Sep 28

    justin,

    It may or may not be something central bankers can control. Demand in the US has been largely driven by credit expansion, not so much by money expansion. It may be that credit contracts faster and further than money can expand if banks are unwilling or unable to take on credit risks held outside the banking system.

    It’s also possible that central banks move pre-emptively and too agressively, causing too much risk to be taken on by the banking system, in which case a burst of inflation is likely until the risk fully manifests itself.

    Clearly, the US fed hopes that moving pre-emptively actually diminishes the risk. We’ll see.

  33. justin commented on Sep 28

    I’m out-ah-here after this; I know I’ve been a big bloviator today. But Estragon are we not being too U.S. centric? The economies all over the world have been pumping the systems, (according to an article I read in the economist). Why is it that our “central bank,” is the only one that counts? But on what you say, Swizerland, Denmark, and Britain actually have bigger mortage book relative to its GDP…for whatever that’s worth?

  34. Eclectic commented on Sep 28

    Hey Pool,

    What?…???

    …No… Don’t tell me… Can’t be…

    Bernanke?…What’d he do, cut ’em another 50?…Get out!

    I wouldn’t sweat it Pool. Wake me up at 4.75 and we’ll take another look.

  35. Eclectic commented on Sep 28

    Justin,

    It’s true they can tighten the screws and thereby c-a-u-s-e a recession serious enough to lapse into deflation, but it’s also true they can’t prevent deflation just by refraining from being too tight or by actively injecting liquidity.

    It’s partially a myth that the Fed was too tight during the Great Depression. Many banks were knee-deep in liquidity, but wouldn’t loan it, even with reduced reserve requirements.

    The Fed has been asked to assume much of the responsibility for the tightening of liquidity that resulted from a tax increase during the Hoover administration.

    Keynesianism had its most profound uses in fiscal policy, not in monetary policy. It’s what FDR realized and what Monetarists and fiscal conservatives fought tooth and claw. In fact, we learned in the 1970s that rampant Keynesian monetary policy can be reckless and destructive, witness the Carter administration’s baiting of inflation, by acceding to the demands of powerful unions that caused ‘cost push inflation.’ This is BTW uniquely related to our later Big Pic topic regarding the UAW union.

    You mentioned Weimar. Keynes was profoundly opposed to the policies imposed on Germany by the Treaty of Versailes that he contended caused the hyperinflation of Weimar. It wasn’t a monetary tightening that caused it. It was a collapse of Monetary Obedience (see my work referenced below), because Versailes put the fiscal screws on Germany.

    Psychology can trump liquidity. Read all my work on “The Perceived Liquidity Substitution Hypothesis” on this blog.

  36. wunsacon commented on Sep 29

    Eclectic, unfortunately, I often “give up” reading your longer theoretical posts, expecting I’ll return to them and invest the effort to understand them later. But, I never do. It *would* be nice if you posted your refined thoughts somewhere.

    True, I can google for:

    site:bigpicture.typepad.com eclectic “perceived liquidity”

    But, if you had the means to edit/refine your previous posts, I’m sure you could make your reasoning more cogent. That’s where having your own site (or just a free Yahoo group) would help.

  37. Eclectic commented on Sep 29

    wunsacon,

    You’re talking about 50 years of thought experiments in which I’ve struggled to ignore conventional understandings of money, labor, productivity, power and macroeconomic theory.

    I can’t compress it any more than I have and still give any rational person an opportunity to understand it.

    You want it compressed more. This is the best I can do:

    1 – Your concepts of what money is, developed since your earliest introduction to money are likely invalid. It’s because humanity has a need to make it a tangible thing, but it’s actually an intangible philosophical force related to power (not mechanical power).

    2 – Mankind seeks as its real economic objective the reduction of costs of goods and services marginally toward philosophical zero. This objective is real… it is subconsciously expressed and augmented by a false but consciously expressed substitute objective of obtaining riches via profiting from economic exchange.

    3 – Profit is an erroneous philosophical concept, and it exists only as a waste byproduct of the real engine of wealth creation… human productivity, which itself strives to achieve philosophical infinity, no differently than Inherent Commodities have already pre-achieved positive infinity in terms of human perception. Inherent Commodities are both priceless and universally owned (gravity, tides, sunlight, atmosphere) and thus not exchangeable as commodity money.

    The greater complexity of my theories regarding “The Perceived Liquidity Substitution Hypothesis” and its attending discussions and definitions regarding “Subjective Liquidity Preference” theory are just too difficult to put into a similar compression.

  38. wunsacon commented on Sep 29

    Thanks, Eclectic.

    I tried to think of examples of the first two and debate the third. Please let me know what you think.

    1 – For instance, MEW can be represented by tangible units (e.g., “pulled out $50k” via home equity loan). But, “how much can be extracted” depends on the appraisal (and other factors). In turn, the appraisal depends on “how much would a potential buyer sacrifice to gain possession of the house?” The potential buyer’s willingness to sacrifice his/her future earnings — stemming (in the case of a prole) from his/her future labors over the course of decades — is the “intangible power” driving this whole transaction. (Is that correct?)

    2 – For example, we think “more exchange is good” by moving all production to China. It’s an attempt to “reduce of costs of goods and services marginally toward philosophical zero”. But, the extra pollution is treated as an externality; it’s not included in transaction costs. So, there is a divergence between the philosophical and the real.

    (Can you categorize all divergences between:

    (a) the “drive to philosophical zero” and

    (b) “the false but consciously expressed substitute objective of obtaining riches via profiting from economic exchange”

    as externalities? If so, I understand point #2.)

    3 – Calling “profit” a “waste byproduct” seems like a subjective assessment. Accumulated “profit” gives me the right to tell others what to do. (E.g., “you!, feed me grapes and fan me with those branches”, “you!, build me a Honda Accord”.) If I’m more productive (create more wealth), should I not profit by it? I.e., should I not obtain some power over others to make them feed me wine and build me a Honda Accord?

  39. Dervin commented on Sep 29

    BR, the Chinese numbers are probably rooted more in fantasy than reality. I was in HK for three years (2003-2006) and every time China released some numbers, the South China Morning Post Business Columnist would just take them apart.

    The Chinese Government is planning to use these numbers for something.

  40. Eclectic commented on Sep 29

    wunsacon,

    First of all, you haven’t read all my work. If you had, the nature of your questions would be different. You copied somebody’s homework… or read the Cliff Notes… that’s a no-no. But, I’ll answer you anyway.

    -No, your number 1. is about values. I was speaking about what money actually is in the philosophical sense. It’s like you were referring to a preference for the taste of one thing over another (value judgment, valuing MEW, appraisals), but what I’m referring to is about what the sense of taste actually i-s.

    -Yes, all externalities that inhibit the natural progression of human productivity marginally toward philosophical infinity represent the misallocation of resources. It’s not that profit in the conventional sense is impossible, but only that it is merely a wasteful byproduct of humanity’s attempt to achieve its real economic objective – zero costs for goods and services. You’re likely to have extreme difficulty with this concept, but it might be helpful to at least try for a moment to imagine a world in which a market participant eschewed profit and instead invested the fruits of his own productivity into reducing the costs of the goods and services he provides others. Here you’ll laugh, wunsacon, but don’t laugh long. What I’ve just described IS the phenomenon that has rolled its way through all the economic endeavors of mankind, for all its cognitive existence. Even the profits we all recognize to have been accumulated by others of extreme wealth are simply obviated by the progression of human productivity over time.

    -Of course my classification of profit as being erroneous and wasteful seems subjective to you. It’s because you can’t accept the philosophical truth of the relationship between productivity and wealth, and that’s because it’s difficult to break away from a mindset reinforced by all our human experiences. I’ve explained elsewhere on another topic that a convenient way of thinking about this is when pondering the engine of an automobile. The objective of the improvement of its motive force is tantamount to its productivity. The observation of the heat wasted in the enterprise is a byproduct tantamount to our observations of profit.

  41. Jesscia commented on Sep 29

    I JUST THOUGHT MAYBE THE GOVERNMENT DOES NOT WANT TO PAY BACK MONEY BRORROWED FROM OTHER COUNTRIES , SO JUST SUPPLY MORE DOLLARS WHICH CAUSED INFLATION

  42. wunsacon commented on Sep 29

    Eclectic, thanks. Yes, I read the Cliff Notes (i.e., your earlier post). Also, I didn’t laugh on #2. I agree with you.

    I recall you and Winston discussed your ideas once in a long thread. …searching…ok, just 10 hits via google…not too bad…I’ll go back and read these.

  43. 8 commented on Oct 2

    China’s inflation was partially imported from the U.S. The rest comes from making too many RMB.

    However, one country’s inflation does not affect anothers unless their currencies are linked, because in the end it’s all about money supply. Therefore, China can’t export inflation. The U.S. can export to China, and China could send back what the U.S. created, but they cannot create more inflation. U.S. money supply is growing about 2% now, Chinese money supply was recently growing over 20%. Do the math.

    Also, remember that China’s biggest worry is political: making enough jobs to keep the CCP in power. Yes the Phillips curve is dead, but as long as their economy is growing, inflation is preferable to unemployment.

  44. The Big Picture commented on Oct 16

    Read It Here First: China’s Next Big Export: Inflation

    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…

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