The impact of rising prices in China

A Chinese worker stands in front of containers at a cargo terminal in Shanghai.

Tess Vigeland: $4.57 was the going rate in my neighborhood to fill up the tank over the weekend. And I'm pretty sure that's not the highest price in Los Angeles. Food is getting more expensive, too. But so far those price spikes haven't kicked off broad inflation in this country.

In China, however, the overheated economy has triggered a troublesome inflationary cycle. And from fuel to smartphones, the price of everything is going up. Our China correspondent Rob Schmitz joins us from Shanghai to talk about it. Hey Rob.

Rob Schmitz: Hey Tess.

Vigeland: So how are these rising prices affecting you?

Schmitz: Well as a foreigner in China, I'm being hit with sort of a double whammy -- the rising price of everything plus China's currency has risen 5 percent on the dollar. So that means over the past year, I've lost 5 cents for every dollar I spend here. And that's not too bad, but the price of food in China has risen 11 percent since last year and that's a big jump. My wife and I were talking about this last night and we couldn't think of one restaurant we go to that hasn't overhauled its menu in the last few months. Everyone is raising prices. The kung pao chicken at the Hunan restaurant down the street is suddenly a dollar more than it was last year. The eggs we buy are now 20 cents more. I sort of feel like I'm an old-timer complaining about prices of eggs in the good ol' days, but I'm reminiscing about prices from last year. But for me, a foreigner in Shanghai, it's not that big of a deal. But for your average Chinese worker who's barely getting by and is living paycheck to paycheck this is pretty serious.

Vigeland: Well now that you've gotten me hungry, let's talk about those working Chinese. How are they dealing with this?

Schmitz: Well I've noticed that my Chinese neighbors are changing their buying habits a little. Instead of heading to the supermarket down the street, they're flocking to open-air markets now where they can bargain. And of course, they're not buying as much. But you're seeing more families invite grandpa and grandma over for dinner to share meals. So a lot of these things that were commonplace in China for decades are starting to make a comeback. On the more serious side, two weeks ago here in Shanghai truckers held protests that turned violent and this was all because their incomes haven't kept pace with the price of fuel.

Vigeland: Wow. Well Rob, what is the Chinese government saying it's going to do about this? You've got to think they're a little worried.

Schmitz: Yeah. I mean, when inflation gets to the point where it's causing social unrest that's definitely something that grabs the attention of China's government. Local governments set the minimum wage here in China and they've been raising minimum wages by an average of 20 percent over the last couple of years. Yesterday I spoke with a sanitation crew in Shanghai and spoke to them about inflation. They said it was a problem, but they told me the city gave them two pay raises this year so they seem pretty content with that. Another thing the Chinese government is doing is two weeks ago they passed a law that exempts anyone who makes less than $500 (U.S. dollars) from income taxes and that affects a lot of people. So the government is trying to work with the people on this. And this, Tess, is where inflation affects you in the U.S.

Vigeland: How so? Draw a line for us.

Schmitz: Well, bottom line is this: Stuff in China isn't so cheap anymore. Chinese workers are demanding and getting better wages. Higher wages will be passed down to you, the American consumer. And all of a sudden, those cheap Chinese goods that were helping to keep prices low in the U.S. are going to have higher price tags on them. And then, voila, you've got inflation. Not a great time for it either. The U.S. economy is still suffering from slow growth, high unemployment. This is definitely not a Chinese export anyone wants, but most economists agree it's coming your way.

Vigeland: All right. That's our Marketplace China correspondent Rob Schmitz joining us from Shanghai. Thanks so much, Rob.

Schmitz: Thanks Tess.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.

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