A nifty report by Bank of America/Merrill Lynch's crack Asian economics team describes how Chinese inflation is going global. In particular, prices of manufactured exports are now rising apace with quotes on commodities. In the latest Canton Fair in October-November 2010, the analysts report, export prices were hiked 3%-5% (in dollar terms) from those exacted from foreign buyers at the same fair held in the spring, while labor-intensive goods -- apparel, shoes, luggage -- were boosted an immodest 10%-20%.
The rises reflect, among other things, an increasingly restive labor force, especially migrant workers who got an 18.7% raise in wages in the first three quarters of last year, and the shrinkage of the supply of rural surplus workers younger than 40, which had provided a steady flow of cheap labor. Rising paychecks also have lifted food prices, which account for about 75% of the rise in the country's consumer price index.
As the BofA/Merrill analysts sum it up, "Inflation in China's headline CPI -- as well as manufactured prices -- suggests that we have reached a key inflection point in the China story. The supply of low-wage, surplus labor has probably disappeared. This could be the end of a disinflationary force on the global economy."