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Will China export its inflation?

Scott Tong Feb 19, 2008

Will China export its inflation?

Scott Tong Feb 19, 2008

Kai Ryssdal: You think Ben Bernanke has trouble with inflation. He’s got nothing on Beijing. The Chinese govermnet reported today its inflation rate is up 7.1% from a year ago. The biggest in more than a decade.

Chinese manufacturers had been absorbing much of the inflation, which put the brakes on rising prices elsewhere in the world.

From Shanghai, Marketplace’s Scott Tong reports is whether China’s going to start exporting inflation along with everything else.

Scott Tong: Chinese poultry prices jumped 41 percent in January; pork 59 percent.


But economist Glenn McGuire of Societe Generale sees just a short-term food shortage. He says the coming months will bring signs China’s Old McDonald is picking up the slack.

Egg production is up, and more meat is on the way.

Glenn McGuire: It’s much quicker to breed chickens and raise eggs than it is to breed cows and pigs. There’s a longer supply period which is needed for that.

But Chinese shoppers worry about what’s happening now and the fear is they’ll panic buy, which could lead to actual inflation.

It’s a self-fulfilling prophecy that can spiral, says Deutsche Bank’s Jun Ma.

Jun Ma: For example, in 1988 when inflation was hitting over 10 percent, people began stockpiling things like sugar and salt and even toilet paper.

To cool inflation, Beijing is hiking interest rates and the value of its currency.

The trick is not to slow down too much, just as China’s export clients in North America weaken, too.

Jun Ma says those American buyers have another China issue: rising prices at the Chinese factory gate. Especially shoes, toys and textiles.

Ma: The low end sectors are experiencing more pressure, because their margins are being squeezed and they cannot sustain production without raising prices.

That squeezing comes from soaring wages, and energy and raw material costs.

Chinese producer prices are now growing at their fastest rate in three years.

In Shanghai, I’m Scott Tong for Marketplace.

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