Get Ready for China’s Hot New Export Product: Inflation

Coming soon to a store near you.

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.

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.

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 living for consumers in urban areas. Nevertheless, according to this index, consumer prices rose 2.1% from a year ago (chart via Trading Economics):

Since 2012, these consumer prices, despite steeply negative producer prices, have increased in the range of +1% to +3% year-over-year!

Food prices, a politically sensitive category, rose 2.4% in December, compared to a year ago; non-food prices 2.0%. Consumer goods prices rose 1.8% while prices of services rose 2.5%. The government is targeting “price stability” – as it’s now called around the world – of about 3% inflation.

Rising consumer prices amount to inflation for internal consumption. However, Chinese producer prices filter into the global inflation picture via price increases by export-oriented producers that want to stay alive and make some money, if they can. And these higher prices are sooner or later headed for the US.

The People’s Bank of China keeps an eye on consumer prices. Surging prices could trigger bouts of social unrest – and have done so in the past. But at the current level of consumer price inflation, authorities are unlikely to get too nervous. And with all the anxieties they already have about the Chinese bond market, the banks, the shadow banks, nonperforming loans, the yuan, capital flight, and so on, inflation is not currently high on their worry list.

So producer prices, particularly of export products, are for now left on their own. The yuan’s weakness against the dollar has absorbed some of the price increases on export products, but it also raises some input costs for Chinese producers, further pressuring them to raise prices. And exporters will try to pass these higher prices on to their partners overseas, as far as possible, who in turn will look to consumers and in the US and elsewhere to foot the bill. Higher prices out of China are a phenomenon the US economy hasn’t seen in years.

The US-Chinese trade relationship has some, let’s say, issues. So now there was a friendly chat among billionaires who presumably see eye-to-eye. Read…  What 1 Million US Jobs? Dreading a Trade War, China Sends Alibaba’s Jack Ma to Trump for some Fence Mending

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  82 comments for “Get Ready for China’s Hot New Export Product: Inflation

  1. Brett says:

    Do we really need more Chinese crap, our homes are full of it?

    Perhaps higher prices will make people think twice about buying the next plastic bit of made in China crap.

    • Nicko says:

      It used to be Taiwan or Japanese low cost ‘crap’….prices and standards rose, and now we get quality goods from those countries. I see no problem with China moving up the value chain. After all, China’s growing middle-class is larger than the population of UK, Germany, and France combined.

      What of the American middle class?….still shrinking.

    • Intosh says:

      I bet your fingers were touching Chinese “crap” while typing that comment, sitting on Chinese “crap”. In fact, chances are you have Chinese “crap” on you right now. So no, you will still keep buying the crap because you can’t live without them, just like many who can’t help but eat cheap packaged food (the real “crap”).

      • nhz says:

        yes, it this trend picks up either Apple products have to go up in price and/or Apple shares will sink. Many of the same people who complain about China would not be happy with that. Of course, bringing back all Apple production to the US would have an even stronger impact.

      • nick kelly says:


        Next: an odd thing on Squawk Box Europe MSNBC night before last.
        This is an entertaining show because the three Brits have heavy hitter financial guests but they do some yacking without being annoying.

        Example: on that day a while back when some guys wore high heels to support women or something, they played a clip of Sir Richard Branson as the ‘trolley dolly’ on one of his planes, complete with makeup.
        Steve, a sort of cockney type, says: HELLO!
        Geoffrey, plummy accent, Oxford type says: Now you’re scaring me.

        But they get down to business and last night they had on the head currency strategist for HSBC- a Chinese heavy hitter who looked maybe thirty. So they start discussing dollar/ yuan type stuff and one of the Brits asks something like; are your Chinese clients concerned about yuan devaluation?

        What does the kid say? “More of our mainland clients are worried about their kids dying from pollution”
        And so because the show is free floating the conversation goes off in a whole new direction for a few minutes before we get back to what the kid is here for- currency advice.

        But like holy sh*t.

    • Spaulding says:

      America’s largest export is scrap material. It is literally crap! So I maybe American’s should think twice about why the country is in such a mess before denigrating what hard working people from other nations produce.

      • Wolf Richter says:

        >>> “America’s largest export is scrap material.”

        Good grief…

        In 2015, US exports were $1.5 trillion. The top 10 exports categories accounted for 68% of the overall value of US exports. Here they are – note that “scrap material” is not part of the list:

        1.Machines, engines, pumps: US$205.8 billion (13.7% of total exports)
        2.Electronic equipment: $169.8 billion (11.3%)
        3.Aircraft, spacecraft: $131.1 billion (8.7%)
        4.Vehicles: $127.1 billion (8.4%)
        5.Oil: $106.1 billion (7.1%)
        6.Medical, technical equipment: $83.4 billion (5.5%)
        7.Plastics: $60.3 billion (4%)
        8.Gems, precious metals, coins: $58.7 billion (3.9%)
        9.Pharmaceuticals: $47.3 billion (3.1%)
        10.Organic chemicals: $38.8 billion (2.6%)

  2. David Calder says:

    How are price pressures happening in a country where Foxconn pays a monthly $130? I read a post you put up a few months back that Foxconn laid off 60,000 and fully automated their work lines after wages increased to 60 cents per hour. Years ago, when all of this outsourcing started, I remember economists saying this would all eventually level out where the world’s workers would stabilize at $7 per hour.. I thought $7 was starvation wages so wouldn’t that make 60 cents slave wages?

    • Wolf Richter says:

      They’re automating BECAUSE wages have surged for years, and it’s now cheaper to invest in automation equipment.

      When you look at big numbers of workers – like plans to replace 60,000 workers with robots – it’s a good idea to keep in mind the size of China’s HUGE labor force (deemed ca. 775,000,000 = twice the total US population).

    • MC says:

      China has never been solely about low wages: if you are exclusively after low wages other Asian countries offer much better conditions.
      For example the standard wage for textile workers in Bangladesh is 5,300 taka/month. At today exchange rate that means US $64/month.
      Same industry in Vietnam? The government-mandated wage for textile workers (which include not only those in the garnment industry but also those manufacturing shoes and leather goods) is 1,150,000 dong/month. Which sounds great, until one exchanges that in US dollars: at present exchange rate the going is US $46/month.

      Before using the word “slavery”, let me remind you that a farm hand in Vietnam can consider himself or herself lucky to earn 800,000 dong/month, albeit usually it’s far less than that. As miserable as the wages of textile workers may look to us, they are a step forward.

      Most Westerners have never seen the so called Third World outside of TV programs or, at most, tourist resorts, so we fail to understand most of the world is, how can I put this?, dirt poor and we have forgotten how true poverty looks like.
      Our ancestors went through the same phase, only they had no Westerners sobbing about wages in South Asia while demanding “low prices, always”.

      • Petunia says:

        I recently drove thru a portion of the third world right here in America, the outskirts of New Orleans.

      • West says:

        And too many people don’t care, as long as it’s someone else’s job who is offshored and they can buy cheap goods at the local store.

        Buy American – you just might save your neighbors’ job (and hopefully he thinks the same thing).

      • Chicken says:

        Yes, there are third world countries where I’d rather live than some run down US cities. And hypocrites abound in wealthy urban areas, are heavy investors in those 3rd world countries.

        Two nights ago, Meryl Streep received a Lifetime Achievement award at the Golden Globes, and chose the moment to launch a very personal attack on Donald Trump.

        She began by saying that Hollywood, foreigners and the press are ‘the most vilified segments of American society right now’.

        At which point the cameras panned out to hundreds of the richest, most privileged people in American society sitting in the audience in their $10,000 tuxedos and $20,000 dresses, loudly cheering this acknowledgement of their dreadful victimhood.

        She then said that if all the ‘outsiders and foreigners’ were kicked out of Hollywood, ‘you’ll have nothing to watch but football and mixed martial arts, which are not the arts.’

        • nick kelly says:

          I wandered around the poor area of Montevideo, Uruguay for weeks. Lots of old buildings sometimes in ruins- but cool old stone ruins. Sometimes with apartments opening on to the sidewalk so you are looking into a living room as you walk by.
          Often walked in evening when it was cooler.
          Never got one bad vibe- in this area the skin tends to be darker.
          I could live there and still may.
          BTW: there are six foot high pot plants growing on balconies across from the police station

      • David Calder says:

        MC, I was in Vietnam, 68-69, and did R&R in some of the 3rd world countries.. I witnessed poverty that was appalling while the rich lived in walled, gated, and heavily guarded compounds.. The CIA rated our ally, the Ngo (Diem) family, wealth as “vast.”
        If we are expected to compete with $46, $64, or a $130 per month in a globalized world where capitalist investors are automating every thing that can be automated because these wages are part of a wage surge then we too will see true poverty.. Then we can talk about slave wages.
        Our ancestors, mine were here in the Revolution, we better paid and more wealthy then the average British or German soldier paid to put them down.. We had no one sobbing for us because we were armed and fought to take what we felt was ours..
        Our industrial era ancestors were better paid than their British counterparts which is partly why we had tariffs. In 1850 the cloth mills in Fall River, Mass was filled with workers from Lancashire, Eng. because the pay was much better. Same with dock workers in San Francisco where Scots filled the shipyards. The Welch, Yorkshire, Italians, all came because mining in America paid better than anyplace else..
        We are now in a race to the bottom and are arguing over pennies in labor costs when early America was the high wage capital of the world and even then the workers knew they were underpaid for the profits that were being made.. Our ancestors unionized the factories, mines and mills and created the greatest middle class and the wealthiest working class the world has ever seen and now it is over..

      • interesting says:

        “so we fail to understand most of the world is, how can I put this?, dirt poor and we have forgotten how true poverty looks like”

        I certainly may not be considered dirt poor but based on houses costing 10X+ what i earn a year and absolutely no hope of ever retiring it sure seems like I’m part of the working poor.

        I guess I’m better off than many i know where, using their earnings, houses are 20x-30x what they make.

      • nhz says:

        Even in some parts of Europe wages are already lower than in most of China (e.g. factory wages in Romania), and those Romanian workers probably have higher costs to deal with.

        Also, looking at video from the larger Chinese cities it always strikes me how wealthy the average citizen looks. Big cars, well dressed – if there are ‘slave wages’ in China is certainly doesn’t show in the cities. Of course it is just part of the picture, and I don’t doubt that some of the population lives in poor conditions. I can assure you that my own Dutch city looks a lot less wealthy at first glance than those big Chinese cities (a big change compared to one generation ago).

    • nicko says:

      China is on the fast-track to transitioning to a services economy…

      • MC says:

        Hopefully we won’t all die of old age before that happens.

      • West says:

        Wealth is created by making a product. What is a services economy? Sending a tweet to each other? (stolen from Carl Ichan CNBC interview – but I agree wholeheartedly)

        • I forgot where I read this long ago, and if I remember it at all clearly, it was a German economist that said it:

          “We cannot make a living giving each other haircuts.”

          Service economy indeed. More economist hogwash when they speak of transitioning to a service economy.

          A lot like this other completely false economist statement, “A great rotation out of stocks and into bonds.”

          Since every share of stock is always owned owned by someone during every single second of every day, there can be no “rotation out of stocks” . Just a change from one ownership class to another. Duh.

          Service economy — whatta load of crap.


        • Smingles says:


          We can not make a living watching robots create stuff, either, so there goes manufacturing.

        • d says:

          “We can not make a living watching robots create stuff, either, so there goes manufacturing.”

          Why not?

          2 groups of people will make money from robot manufacturing, those who own the robots, and those who own the products the robots make.

          There will be contract robot factories making X, Y, and Z for A, B, And C.

          Robot factories will still be expensive to set up and difficult to keep at full production, so inefficient, unless they are shared, it is efficient to do so.

          Just as there are contract wharehouse’s today, that distribute many items, for many suppliers, to many destination’s.

          The big problem is, since 1945 the global population has tripped, soon unless there is real change, it will quadruple, and there is now no long term productive work for over 60 % of them.

          The only people reducing their population expansion are, White, Japanese, and Chinese.

          Nobody else is listening.

        • Chicken says:

          It’s baffling why some folks seem to believe offshoring manufactured goods is good for the country, it should be clear by now they’re talking their book.

          Hopefully Silicon Valley gets offshored, India would be a great place to send those jobs.

        • @Smingles

          You posted, “We can not make a living watching robots create stuff, either, so there goes manufacturing.”

          I agreed with you before you typed it . . . .

          And any Nirvana proceeding from the wonderment of robotic production, flows to the owners of the factors of production . . . .

          So we cycle back to some necessity of some flavor of Marxism, because :

          (1) Behind every great fortune there lies a great crime ( meaning that the wealth that came to own the factors of production might not have been honestly acquired )

          (2) Because of “democracy’s” failure ( the rentier class owns the government ) and other failures of capitalism itself ( numerous )

          , , , , , , that resulting concentration of wealth leads to a permanent elite rentier class. Look at the permanent parasitic class of Hollywood elites as an example only — and you will see the the only rescue for the 99% is elimination of the parasitic rentier class, preferably starting with the H’wood parasites

          Revolutionary stuff indeed.

          The 99% are doomed to permanent slavery and will never get free in any way without a revolution. Meaning the 99% will not benefit from robotic production, as long as the top 1% own the real wealth in the nation, i.e., the factors of production.


    • chris Hauser says:

      most construction materials i buy that are made in china seem to be DROPPING IN PRICE.

      but i’m not counting on it continuing.

    • Hugo says:

      For hundreds of years ‘economists’, or more reasonably, people who thought about money and business observed that workers wages tended to trend to a bare subsistence wage.

      From Ricardo to Marx, this was an established truth of the markets. It was part of the history they studied. If you were a worker, you lot was to starve and die an early death.

      It’s interesting that today we use automation or immigration as an excuse for what was long thought of as fact of life, before everyone seemed to forget about it!

      By hook or crook the owners of capital use their power to destroy the working class! No robots or Mexicans need be evoked here!!!

  3. michael engel says:

    In the last 100 years, when the US entered a recession, we caused a global recession.
    The next global recession will start, for a change, when China
    will enter a recession.
    It’s due because Chinese debt to GDP ratio, in the last – 1 year,
    5 years, 8 years, – is the highest ever in history.
    Those CPI no’s are in RMB’s and the Chines currency is devalued
    in comparison to the $USD, $EUR and the $JPY.
    The baby boomers were born after WWII. They got married, had children, had better income and needed more stuff.
    Now they are old and old people don’t need more stuff.
    The new generation don’t have better income, have a lot of
    debt and delay marriage, therefore cannot afford more stuff.
    The fuel of world trade had a perfect match with the baby
    boomer generation, but it’s reaching it’s natural slow down.

    • economicminor says:

      I agree with you.. boomers need much less.

      A piece of that puzzle you overlooked is that renters not only need less stuff because they move more often but as the move back into the inner cities happened since the beginning of the century, more and more are living in apartments and condos which have much less space.. Less space, less stuff. No where to store it all.

      The world economic trade seems to document this trend as trade has also slowed down.

      • nhz says:

        people are adapting, purchases are moving to the virtual realm …

        Two generations ago most homes of middle-class people in my country had a library, sometimes a really big one if they were ‘upper class’. They spend fortunes on e.a. an encyclopedia. Nowadays many younger people have very few real books, if any (or LP’s, CD’s, video tapes for that matter …). Many types of furniture are disappearing e.g. over here large cabinets for dishes, glasses etc were standard furniture 1-2 generations ago and people spent a fortune on them – now the antique shops almost can’t give them away because people no longer need/care for that kind of storage (maybe also because households are shrinking?).

        I went from a huge 17th century city mansion to a 8x smaller city apartment; it was a pain getting rid of all the excess stuff but now that it’s done I feel a lot better, keeping my ‘stuff’ to the minimum (still have books, CD’s and LP’s though and I’m renting storage for a few pieces of furniture that are too big for my current apartment …)

        • Smingles says:

          “I went from a huge 17th century city mansion to a 8x smaller city apartment; it was a pain getting rid of all the excess stuff but now that it’s done I feel a lot better, keeping my ‘stuff’ to the minimum (still have books, CD’s and LP’s though and I’m renting storage for a few pieces of furniture that are too big for my current apartment …)”

          Yeah, I think when most people do this, they realize the same thing. For most people, a lot of the ‘stuff’ they own is excess clutter that they can find some reason for keeping, but not really a compelling one. Sometimes when you just finally bite the bullet and toss it (and it’s always nice if you can either sell it, or at the least donate it), you think… wow, why didn’t I do that years ago!

          I had a bunch of stuff I held on to for ‘sentimental value’ and after getting rid of it, realized that there was VERY little sentimental value actually there. Don’t miss it at all.

  4. Jonathan Vause says:

    ‘The yuan’s weakness against the dollar has absorbed some of the price increases on export products, but it also raises some input costs for Chinese producers, further pressuring them to raise prices. And exporters will try to pass these higher prices on to their partners overseas, as far as possible, who in turn will look to consumers and in the US and elsewhere to foot the bill.’

    this kind of thing always seems a bit circular to me, although it’s very common (I saw it a lot post-brexit from people keen to convince themselves that the uk economy had entered some kind of doom loop death spiral) – wages in china go up, so prices in china go up, but the exchange rate goes down by a similar amount so the foreign price is the same, but the lower exchange rate makes foreign sourced inputs more expensive, so prices in china go up, so the foreign price goes up anyway – well maybe, but that really depends on how much of a contribution to to total costs foreign sourced inputs make, what the final increase in total costs were compared to the decrease in the exchange rate, whether US demand for Chinese imports is elastic or inelastic (if the former then US prices aren’t going to change much at all), and so on. if you put real numbers in then the idea that higher input costs in china are going to make US inflation spike substantially – well, really? there is a tangerine-coloured reason why US inflation is almost certainly heading upwards, but that has very little to do with china

    • Kent says:

      I tend to agree. As much as people like to think China is a normally functioning capitalist economy, it really isn’t. Chinese industry is about creating jobs and internal expertise first. Profits second.

      Chinese companies can lose money and take on debt with the assurance that the government will always find a way to make them whole. If Chinese companies think raising prices will cut demand, production and employment, they will just eat the loss.

      • Kam says:

        To add to what you are saying. There is still a loss, so somewhere there has to be an offsetting gain for the Chinese government to absorb continuing and growing losses. While it is true that countries that can print fiat can never go broke- inflation and foreign-denominated debt can make them de facto broke with all the attendant social costs.

        • Kent says:

          The off-setting gain is unrealized potential production of more profitable goods and services. But in an economy that continues to grow at a decent clip, it isn’t a noticeable problem for a long, long time.

          China is doing a great job of absorbing its inflationary pressures through overproduction and its housing market.

  5. d says:

    The second china laves a hole at the bottom india will jump Into it.

    Highly probable this is a tactic to get the us to allow a Chinese devaluation with out protest.

    Internal inflation, followed by external devaluation = same price FOB in US $.

    Which also resolves several chinese capital flight issues.

    • chris Hauser says:

      excellent observation, really good.

      but capital will still flee.

      betcha next figure shows they are still hovering above 3T in foreign reserves.

      a miracle of levitational legerdemain.

  6. JB says:

    chinese exporting inflation ! I welcome the process .
    Maybe we can be cost competitive now and produce quality
    products here at home . Retool with German built manufacturing gear. start apprentice programs to educated work force. as i said before it will be a long slog to make america great again . to many special interests have carved out economic niches over the years and will be remiss to give them up! for god’s sake NY shut down airbnb. You can’t open a laundromat without 5 zillion dollars worth of liability insurance .take in laundry in your home and code enforcement will be knocking . i don’t see tort reform as an agenda item .

    • walter map says:

      “many special interests have carved out economic niches over the years and will be remiss to give them up!”

      You’ll have to talk to Nick Kelly about that. He has me convinced that ruthless monopolies and cartels are a good thing.

      “You can’t open a laundromat without 5 zillion dollars worth of liability insurance”

      Either you’re wildly exaggerating for effect or your laundromat is a detonation hazard. Hard to tell without knowing how much 5 zillion might be.

      “take in laundry in your home and code enforcement will be knocking”

      Unlikely, unless you’re spreading typhoid and/or using forced child labor.

      • JB says:

        ask nick kelly what a zillion is .

      • nhz says:

        maybe that’s because the laundromat is a huge environmental liability? It sure can be with the technology from 1-2 generations ago especially the stuff used for dry cleaning etc. or in places with limited sewer capacity.

        I guess there will always be monopolies and cartels because that’s how capitalism works in practice. Once companies or people become big enough they can set the rules and try to eliminate competition, so they can jack up prices and profit. I’m pretty sure such special interests are a bigger factor in making an aging economy uncompetitive than wages (just look at the situation in Southern compared to Northern Europe …).

    • Greatful again says:

      I’ve noticed Amazon is on the fast track for world domination. They’re currently starting to private label many products while also developing their own delivery systems. Even producing entertainment. They have the perfect business for automation….Huge volume and highly repetitive activities. Temp workers call themselves “amazombies” as the work they do makes them into an automaton.

      • Smingles says:

        Amazon and Google are in a race to become SkyNet (the genocidal computer system in the Terminator films). I think Amazon is winning.

        • nhz says:

          Trump has some work to do there ;-)

          I hope he does, because there is a lot of evil behind both companies; it’s not all beneficial technological progress.

  7. walter map says:

    Chinese inflation could be mitigated with a concerted program to minimize worker compensation. Totalitarians as they are, you’d think they’d be good at this. Perhaps they could benefit from learning about 19th-century U.S. labor practices, particularly if they have any large ethnic populations that can be demonized and exploited.

    Save money. Live better.

    • YOU POSTED : “Save money. Live better.”

      I am an inveterate saver. I know few others, among friends, co-workers and family — who save with any force at all.

      The paradox of thrift, I suppose. Were every American to save 10% of income ( my minimum recommendation ) our GDP collapses by about the same amount, overnight. Resulting in an economic depression for sure.

      Thus, TPTB will never recommend or otherwise motivate the plebes ( meaning me, specifically, and the other 98% ) to save.

      Doomed we are, I suppose.


      • walter map says:

        “Doomed we are, I suppose.”

        You have no idea.

        I’m still looking forward to an analysis, if any, from our gracious host on the economic and financial effects of the coming corporate dictatorship. It’s sure to make interesting reading, even without any comments.

        • SoberMoney says:

          Walter, you perked up my text finger.

          The Trump Kleptocracy is working on that corporate dictatorship:

          Here’s how it works:

          1) Trump gets pseudo-intellectual economics “expert” Paul Ryan to work with him and proposes a massive government reorganization where he dumbs down government services by appointing haters of government to run the agencies.

          2) He defunds the services by pilfering the tax dollars usually earmarked for said services and gives our taxes to crony billionaire club members via a bogus privatization scheme.

          3) Years later, as unemployment soars to 15%, the public catches on to the scam, Trump brings in lawyers to change corruption laws so the corruption is now part of the government operations.

          4) Any crimes caught by overzealous corruption prosecutors before the law changes can be negotiated down to a fine of about 10% of the corruption’s net profit with no admission of guilt.

          This new corruption negotiation business plan is then taught at Harvard Prison Business School for Ex CEOs.

          5) By the time angry citizens want Trump out he and his minions have made $billions – but Trump’s die hard voters still refuse to see they’ve been duped by his bogus business expertise populace scam..

          6) Trump retires in “shame”, but Fox News hires him to do commentary and Wharton Schol hires him part time to lecture to business students who end up being lobbyists for the nation’s largest distributor of pornograhy to Trump’s branded hotel chains.

          America elects a progressive Democrat to replace Trump – but unemployed white technocrats elect another Republican after eight years.

  8. Chicken says:

    If China is experiencing producer inflation, doesn’t this suggest the reason is demand has increased?

    DB has this to say about Trumps policies:

    “This policy mix has the potential of reigniting productivity growth and raising U.S. growth potential,” David Folkerts-Landau, chief economist at Deutsche Bank, said in a report for clients. “While Trump introduces higher uncertainty, this is better than the near certainty of the continuation of a mediocre status quo.”

    My suspicion is there are some out there in our country who oppose growth unless it’s in someone else’s back yard where it can’t be seen but can be skimmed for gain.

    • Smingles says:

      Some people question growth at what cost? Financial deregulation in the late 90s and early 2000s certainly gave us quite a bit of growth, for a time…

      So now we’re trusting the banks have our best interests, are we? After all, they seem pretty happy Trump is on board now.

      • walter map says:

        “Financial deregulation in the late 90s and early 2000s certainly gave us quite a bit of growth, for a time… ”

        Only for the Financial Industrial Complex. The real economy in the U.S. has been getting liquidated to feed it.

        • nhz says:

          not just in the US of course, the same happened throughout the West (starting already around 1980 thanks to the policies of Greenspan etc.).

          In my country the size of the financial sector went from something like 5% to 25% or so of GDP in one generation. Last year GDP was growing at more than 1% for a change (!) and why? Of course, because our housing bubble is expanding again, the only ‘growth’ is that people are selling ever more expensive houses to each other (oh yes, I probably forgot the surging migrant industry; another part of the vampire economy).

          Financialization is a cancer that has metastasized and is eating the host alive, it may be too late for a cure.

  9. RD Blakeslee says:

    Your “suspicion” is certainly correct here in WV, where the “greenies” benefit from fracking and production of natural gas to supply their household energy needs…

    …but, don’t do it in WV!

  10. Greatful again says:

    I buy a fair amount of Chinese made products on a monthly basis. I’ve noticed that in the last year certain products have risen in price while others have gone down. It makes sense that the products with more foreign raw materials have gone up, while the products that are more labor intensive, but without too many raw materials have not.

  11. Willy2 says:

    – I am not surprised to see chinese inflation soar. Just look at what happened to the exchange rate between the Yuan & the USD.

  12. Tom Kauser says:

    How about another leg up in the global stock markets because Japanese housewife’s are generating alpha by running from China to Australia hunting yield?

  13. Tom Kauser says:

    Yen carry doesn’t need john Kerry to tarry in office any longer than necessary!

  14. Tom Kauser says:

    China has a worthless specie problem?
    They printed specie against foreign exchange assets!
    Now they will really need AU!

  15. Tony says:

    Will China’s inflation play a part in the increase in Gold prices, do you think ?

  16. mynamett says:

    I don’t about USA since I live in Canada. For example, the other I needed a priming bulb for my snowblower. 11 $CAD at Canadian Tire + 15% tax.
    I can get 5 priming bulbs from China (aliexpress) identical to the ones on my snowblower for 10$ CAD. So form my point of view China is still exporting deflation to Canada.

    Go to a local small engine repair shop to order some snow blower parts, the guys says we don’t have it but we can orders it. What is the point for me to shop locally when they don’t stock anything. Easier for me to order directly from China.

    It is getting more and more difficult to buy stuff locally now. Nobody stock anything other the stuff that sell.

    Trump might have a point. Not sure how Canada will survive a trade war of some kind of event that would cut off deliver of goods from China.

    I just stop shopping locally because the never have what I need in stock and started to shop from China.

    I am not sure how long Canada will survive in a global ecomony.

    • Wolf Richter says:

      >>> “from my point of view China is still exporting deflation to Canada.”

      China would “export deflation” to Canada if the price of those 5 priming bulbs drops from C$10 to C$9 – or if as a consequence of this competition, the price at Canadian Tire drops from C$11 per each to C$10.

      • mynamett says:

        You don’t get what I am saying. There is no local economy anymore. There is no national economy anymore. There is one big globalist economy. You can now orderer directly from China as easily as you can buy locally. On a global worldwide scale China is still exporting deflation.

        One priming bulb is costing 2.5$ vs 11 $. China is now exporting deflation on worldwide scale because there is just one economy, a global worldwide economy.

        The way they are now exporting deflation is killing economy in western worlds. This is what I was trying to illustrate with that example.

        • nhz says:

          it’s a fact of life I’m afraid and I know it from the other side, selling photo/video related gear as part of my previous business. Times change …

          Some 10 years ago selling small photo/video gear/parts started to get really difficult, if only because shipping costs from China are WAY lower than shipping the same product to a customer within a country (like at least 10x lower …). A merchant pays the same a you do (maybe even more) for that Chinese product, unless they buy a huge amount of them; plus they pay many additional costs due to customs, taxes, government regulations with additional fees etc. (e.g. for mandatory EU safety approval and recycling of batteries), required administration etc. that endusers can usually avoid.

          If you buy from China you often don’t know what you get, you cannot get some good advice on what best to buy (just trust the Chinese Ebay descriptions?), you can’t try/inspect the product like in a normal shop, return it or expect serious warranty. Buying from China isn’t as easy and painless as buying local could be – but people take that risk if the price is low enough. I don’t think this is really exporting deflation, much of the costs are now assumed by the customer – they just don’t realize it.

          Something similar has happened in the camera industry over the years due to first mailorder and later internet sales, with the result that over 95% of camera shops have disappeared. In my part of the country you can no longer try out a new camera or lens, while that would have been no problem at all one generation ago. At the same time, camera prices have started going up instead of down …

    • Cyrus says:

      Canada has been *** Kissing China since 1980s; one of the first governments to provide the Chinese citizens with anything so that they would migrate to Canada or invest in Canada. That’s how you shoot yourself in the foot. Canada used to make some stuff, but now it only exports commodities, and any industry that makes anything is foreign owned.

      Price of food, specially fruits, in Canada are through the roof, but by Canadian government numbers, there is no inflation. Canada reminds of the movie Matrix; government can make anyone to think anything the government wants; but in all honesty, it seems that Australia is worse than Canada in all the same way.

    • JB says:

      well you will be without a snowblower for a while till
      your product arrives from china. can’t imagine what
      the shipping costs are . the local price reflects carrying
      costs and might be a superior built product .
      But i know what you mean: it seems that many parts are
      NOT in local inventory anymore . the supplier needs to order them. not sure what’s up with that . we are in a world of hurt
      if china is a sole supplier of mechanical/electrical parts.
      what happens if the port of long beach becomes compromised??

  17. Cyrus says:

    I always hate to wish bad for others; but Chinese have 2 other real ugly qualities that harms everyone; they live to gamble, and do things illegally. Their flipping houses in all these other countries, which is a form of gambling to them, has causes real estate bubbles everywhere. And they seem to finance their flipping house gambling with money borrowed from Shadowy banks. So, they are taking free money, gamble on house flipping around the word, and causing problem for all of us.

    So, if the Chinese economy train comes to a a screeching halt, don’t expect me to shed a tear.

    Just to add, there are a couple of Starbucks stores which are open 24/7 in my area. At night, specially on the weekends, they are jam packed with young Asians smoking and playing cards. They turn the whole stores into a casino. If I wanted to go to a casino, I want to go to Las Vegas, not to Starbucks.

    • akiddy111 says:

      I thought Starbucks did not allow smoking. What country are you in ?

      • Cyrus says:

        I wasn’t talking about them smoking in the store; they have to step out to smoke, but that’s all they do all night; play cards, and smoke.

        • d says:

          If you look a little harder yob will probaly find they are doing more than just playing cards and smoking.

    • nhz says:

      “they live to gamble, and do things illegally. ”

      Goldman Sachs must be a Chinese company then?

      Oh I see, it isn’t gambling it is foreknowledge and manipulation in their case, far more ethical than those bad Chinese ;-)

      • Cyrus says:

        I believe at least 90% of posters on this forum will say Goldman Sacks bosses are corrupted and criminals. And we have a lot of criminals in US too; what is important is percentage of the population who are willing to do criminal things or live to gamble. And Chinese society has a much higher percentage of those who are willing to do the illegal, or live to gamble.

  18. Sporkfed says:

    Race to the bottom for wages with assets soon to follow . How can workers pay first world costs on wages that statnating even as productivity rises ? Lower rates were the bandaid but eventually asset prices have to fall.

    • d says:

      “Lower rates were the bandaid but eventually asset prices have to fall.”

      Or Wage rates have to rise.

      Where wages have increased by 200% House prices have gone up by 1900%. In the same time frame.

      There has to be change.

      It dosent necessarily have to involve massive asset deflation.

      • akiddy111 says:

        “Where wages have increased by 200% House prices have gone up by 1900%. In the same time frame”.

        Maybe in a few zip codes throughout the USA. Mostly, mortgage loan amounts are no greater than 5 times household income (wages).

      • nhz says:

        In Netherlands over the last 25 years house prices have gone up by 1000-1500% and family income by about 100% (don’t know the exact number because they keep changing the definition of income over here). All possible thanks to increasing debt/leverage, the Netherlands is in the top three world wide for total debt load relative to GDP.

        Already 15 years ago I was convinced that the stellar home price gains could not last, but apart from a small minus 10-20% correction in 2008 prices kept increasing. Never underestimate what politicians will do to keep a bubble growing.

        Lately the data in my country suggests that wages are starting to increase at serious pace, at least for government workers (like up 4-5% next year). But even there it’s difficult to predict the future, because that 4-5% wage increase doesn’t mean 4-5% more disposable income. e.g. If someone with a low level job (paying just above the social security level) gets a 50% pay increase, their disposable income will on average increase by about 1% due to taxes and losing many benefits/subsidies ;-( Why work?

        And it’s an election year so the increase may prove a one time election stunt, outside government the wage increases are expected to be more modest.

        • d says:

          my time frame was 32 years.

          Every street in our city in any good or even half good neighborhood has at least 1 vacant foreign speculator owned house in it.

          Increasing demand from Occupiers.

          We need tax legislation as aggressive if not more aggressive than Vancouver, to cool this thing down. A lot.

          Preelection I dont see that happening.

        • nhz says:

          One of the things that is really different in Netherlands is that the bubble manages to keep growing without any significant contribution from foreign speculators. In our previous housing bubble in 1975-1980, there was much speculation from people in Scandinavia and Germany – but no more. Instead of those evil foreigners, we have Dutch speculators who have exactly the same effect. In my inner city 10-20% of the big (expensive) homes are empty, many have been empty for years. A big chunk of them are occupied by anonymous people from anti-squatting agencies; I’m told anti-squatting services is a huge Dutch export product lately ;-(
          In a coastal city close by, 50-75% of the luxury waterfront apartments are empty all year – have been empty for years as well. I heard that you can rent some of them for a good price if you know the owners, but officially nothing is for rent there.

          Nothing will change until politics stops rewarding RE speculators in every way they can imagine. Sure won’t happen in our 2017 election year because homeowners are a voter majority here, and almost every homeowner here is a speculator almost by definition due to > 100% mortgages, tax deductions etc. etc. :-(

  19. nhz says:

    P.S.: Dutch television (VPRO) just started airing some documentaries about this subject and their conclusion is very different. They tie the surge in cheap Chinese stuff to the disappearing middle class, where consumers need to have everything on sale forever because real incomes have been stagnant or worse over the last 25 years. As a result of the need for constant ‘close-out sales’ most normal (department) stores have disappeared.

    Just like cheap and easy access to debt, easy access to cheap junk (instead of possibly higher quality stuff from ones own country that has become unaffordable for the middle class) has kept the average citizen more or less happy even though many are waking up to decreasing standards of living. After all, stuff you really need like homes, healthy food, healthcare, education etc. is inflating wildly and definitely NOT because of the Chinese.

    One of the results is that department stores that sold typically middle class product (good quality but not really cheap) have almost disappeared and are replaced by discounters that sell mostly cheap stuff for extremely low prices (and with very low service level, which most buyers take for granted). One of these stores in Europe is Action, but undoubtedly there are similar ones in the US. Often the cheap gadgets or that they sell in the store even beats Chinese prices on Ebay, even more so for big/heavy items ;-(

    Of course, because China is no longer a very cheap producer more stuff will be coming from other Asian countries, and in the near future maybe from poor Europe ;-(

    Despite the decline in real income for most citizens in the West compared to one generation ago, it is good to realize that even Dutch or American people on social security often have material wealth (looking just at ‘stuff’ they collect in their homes) that an emperor of 1-2 centuries ago would die for. Only services that depend on local workers and speculator goods like homes are excluded from this trend …

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