Inflation will be China's next big export to the world

Business Insider | 1/10/2017 | Wolf Richter, Wolf Street
donuzumaki (Posted by) Level 3
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China’s producer prices – which measure what is sometimes called “inflation at the factory” – soared 5.5% in December, from a year ago. This was far hotter than economists had expected, though they’d expected a pretty good jump, with the Bloomberg consensus guess coming in at 4.6%.

In November, producer prices had already jumped 3.3% from a year earlier. There have now been only four months in a row of producer price increases, after they’d been falling in a long bout that began in early 2012. Prices fell as much as -5.9% year-over-year in mid- to late 2015, under the full onslaught of the twin furies, the global commodities bust and overcapacity in China.

Chart - Economics - Producer - Price - Index

This chart by Trading Economics shows the producer price index for the past 10 years. I added the red line; it shows that producer prices jumped the most since September 2011:

The commodities price crash has now largely bottomed out, though there is no guarantee that it won’t try to seek an even lower bottom. Compared to a year ago, many commodities trade at higher prices, and the deflationary pressures of commodities have flipped to inflationary pressures.

Price - Pressures - Factories - Wage - Increases

This adds to ongoing price pressures at Chinese factories, such as wage increases. They all raise input costs. With margins getting squeezed from the bottom up, producers will be trying to pass on these higher costs to the global supply chains via higher asking prices. And if they get those prices to stick, they’ll export inflation to the rest of the world. And that’ll be a sea change.

By comparison, consumer price inflation looks practically sanguine. The National Bureau of Statistics also released its consumer price index today, which everyone agrees doesn’t account nearly enough for soaring housing costs, among other items, and is not a reliable indicator of increases in the costs of...
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