The next question about higher Chinese wages is, what does it mean for us?
There's a lovely psychic benefit to thinking of Chinese workers getting wealthier, happier and healthier, all while supplying us affordable HDTVs. Some analysts, however, are worried that this benefit will come at a stiff cost to us: inflationary pressure from Chinese exports. For some years now, the falling price of goods from China has helped hold down inflationary pressure in industrialised nations. But with wage and commodity bottlenecks appearing, Mervyn King, the governor of the Bank of England, fretted publicly last year that rising Chinese export prices would reverse that pressure upward. As Chinese inflation has gotten stronger, other analysts have joined him.
This would be a particularly bad time for that to happen, as the central bankers, particularly America's, would like some room to cut rates if there are liquidity or other economic problems. If Chinese goods are getting more expensive, that will be harder.
But as my former employer wrote earlier this month, these fears are overblown. Much of the inflation is in local goods such as prepared food. And while wages are rising, productivity is rising even faster, holding down the price of the goods shipped. To the extent that export prices are rising, this is more a result of China's looser yuan policy than an outflow of domestic inflation.
Of course, to Americans shopping for electronics and other China-made gear, the difference is theoretical; price pressure is still up. But we could fight that by backing off the Congressional obsession with a weak-dollar policy. As the article concludes: "The real threat to America's inflation is not that Chinese export prices start to rise modestly, but that Congress is short-sighted enough to impose protectionist measures which prevent American consumers from continuing to buy cheap Chinese imports."
We want to hear what you think about this article. Submit a letter to the editor or write to firstname.lastname@example.org.