Wednesday, May 21, 2008

US import price index

China Now Exporting Inflation Abroad

Most of us have been waiting for higher inflation to erupt on the scene for some time. Government statisticians have been able to avoid the reality of market place. How many million words have been written on these web sites on nonsense of core inflation? Simplistic nature of that measure, which ignores developments in prices for oil and Agri-Food, is about to come back to haunt those policy makers that have hidden behind it.

Posted by sold 2 rent 1 @ 02:16 PM (1093 views)
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10 thoughts on “US import price index

  • crash n burn says:

    Good!

    By the way S2R1 – I don’t know if you saw my post a few days ago – but nice call with Elliot Wave 5.

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  • Excellent – and something you only need to ask the buyers of the multiples to know all about….

    I wonder if MPC committee have been reading – except for Branchflower (sp) that is?

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  • stillthinking says:

    How can you export inflation from one currency to another? Zimbabwe printed lots of money, does that cause global inflation also? No. Maybe China is no longer artificially cheapening the prices of their exports, but that is not exporting inflation.
    Chinese goods have become more expensive because they are starting to take the full cost of producing them. They finished the discount.

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  • @stillthinking,
    It’s widely accepted that China “exported low inflation” over much of the past decade, through cheap manufactured goods. The UK and US governments claimed that inflation was low, because the Chinese were making cheaper jeans and televisions every year. The Chinese were able to keep their prices low because (a) their currency was pegged to the dollar, (b) millions of rural peasants in China were migrating to the cities, keeping labour prices low, (c) commodity prices were low, and (d) technological innovation always makes prices cheaper anyway.

    Today the picture is very different: (a) China is letting its currency float a bit more freely – the pound and dollar are down against the rest of the world; (b) the urbanisation and industrial revolution was a one-off so wage pressures are now increasing in Chinese factories; and (c) commodity prices are increasing, fuelling rising prices across the board.

    That’s what they mean by China “exporting inflation”.

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  • @stillthinking.

    And to add to drewster..

    If you look at consumer durables and the sort of things that appear in Currys, B&Q, PC World, Homebase, Toys r Us, etc etc then the “Every Day Low Price” statement can only be supported if buyers in those stores can get the cost price reductions they need from their suppliers to keep the price promise. These cheaper goods find their way into the “basket of goods” that inflation measures. So – if the prices go down – you could say that we have so far been IMPORTING DEFLATION. This will have masked the price rises that were there in other goods in the basket. Now that this continual lowering of cost price from China isn’t happening and is being reversed, you first begin to expose the other price risers. If that trend continues and the proportion of goods bought from China remains the same (since we’ve killed of local makers and have nowhere else to go) then you’re going to have to swallow price rises….. which feeds into the inflation stats.

    Re Zimbabwe. As it is not a great exporter of anything we want, the hyper-inflation there will be a local problem (sadly) If it weren’t, noone would have tolerated Bob Mugme very long at all (a subject for another forum)

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  • I’m also curious about how it is possible to export inflation. Surely a country’s price inflation is always caused by past increases in the money supply.

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  • it’s the grammar again : China is exporting inflated prices via goods not inflation.

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  • I can’t see how it’s hard to equate rising prices from an exporting country into domestic inflation. As stated above our “miracle economy” would not have been able to blow so much hot air in the housing bubble without cheap imports.

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  • And China’s spending is not about to stop in the wake of the earthquake; actually quite the opposite, they’re gonna spend many more of their dollars.

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