Tags: China | Wage | Increases | Global | Inflation

China Wage Increases May Spark Global Inflation

By    |   Thursday, 17 Jun 2010 08:30 AM

Chinese workers are finally starting to see some increases in their meager wages, but the raises may not be so helpful for the global economy.

That’s because low Chinese labor costs – along with the strong renminbi – have played a large role in making China’s goods cheap in global markets.

And those low prices in turn help keep a lid on prices of competing products worldwide.

So the low salaries of Chinese workers have contributed to global disinflation.

But now China is changing. Local governments are increasing minimum wages, and factories are lifting workers’ salaries.

“For a long time, China has been the anchor of global disinflation,” Dong Tao, an economist at Credit Suisse, told the New York Times.

The shift of manufacturing operations to China during the last 20 years helped depress prices.

“But this may be the beginning of the end of an era,” Tao said.

Some factories are raising wages due to a shortage of workers amid an aging population.

“Demography will do what the Strategic and Economic Dialogue (between the United States and China) hasn’t: raise the cost of Chinese goods,” Marshall Meyer, a China specialist at University of Pennsylvania, told the Times.

To be sure, with U.S. consumer prices rising only 2.2 percent during the past year, many experts aren’t too worried.

“There simply isn’t any kind of price pressure of any consequence,” David Resler, chief economist at Nomura Securities International, told Bloomberg.

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Chinese workers are finally starting to see some increases in their meager wages, but the raises may not be so helpful for the global economy. That s because low Chinese labor costs along with the strong renminbi have played a large role in making China s goods cheap...
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2010-30-17
Thursday, 17 Jun 2010 08:30 AM
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