Daily Archives: July 5, 2010

The short answer, according to SocGen research, is no, in spite of very significant wage increases so far this year (Foxconn, and others following) in export sectors such as advanced electronics and autos:

The price of labour is picking up dramatically in the coastal provinces. Multinational companies have extended wage gains of 25-30 per cent so far this year, whilst municipalities have extended minimum wage increases of between 5 and 25 per cent.

So why no impact? First, “as China moves rapidly up the value chain”, the increasing value of the goods produced makes the cost of labour proportionately lower. So margins can accommodate the increase. Unit labour costs – which show wages as a proportion of the item’s value – are rising, but at a decreasing rate since 2009.

Second, inflation is affected less by wage increases because there has been an offsetting fall in distribution costs – SocGen explains that the Baltic Dry Index, a proxy for distribution costs, has fallen 75 per cent in the past year.

To explain US import price inflation, SocGen’s model finds Read more

Money market rates have fallen swiftly after Norway’s central bank offered short-term liquidity to banks. Rates remain above those of last week, when they rose following slower-than-normal flows between banks. Tax payments are apparently to blame, reports Reuters:

Norges Bank promised two liquidity loans, called F-loans, in a move designed to reassure markets and which quickly brought down money market rates. The central bank also held out prospects for further loans… Read more

Martin Weale, Gordon Brown’s least favourite economist, has finally become a member of the Monetary Policy Committee. Having been director of the National Institute of Economic and Social Research for 15 years, he has long been an obvious choice for the Committee but never before got the nod.

With the arrival of the new government, the black mark against his name has been removed and, I am told, he was a natural choice for the Treasury panel and the chancellor.

His appointment is obviously a loss to the public commentary on economics, but we must be able to hope he will still be vocal in his views, challenging authority in the constructive way he has shown in recent years. An example of this was in the FT less than 2 weeks ago when he wrote on Budget day that the chancellor’s “budgetary  target is not ambitious enough” and sought a further tightening of 1 to 2 percent of national income. Many people will disagree, but these views deserve to be aired. Read more

Asia’s fifth largest economy has held rates at 6.5 per cent. Indonesia is bucking the regional trend of rate increases: the central bank has not raised rates since October 2008, and they have been flat for almost a year, since August 2009. Holding rates is consistent with the current inflation target of 5 per cent +/- 1 per cent: current y-o-y inflation is running at 4.16 per cent.

As part of the ‘calibrated exit’ from expansionary monetary policy, the Reserve Bank of India unexpectedly increased the repo rate to 5.5 per cent and the reverse repo rate to 4.0 per cent. The central bank also extended liquidity support already in place for commercial banks:

i) The additional liquidity support to scheduled commercial banks under the LAF to the extent of up to 0.5 per cent of their net demand and time liabilities (NDTL) currently set to expire on July 2, 2010 is now extended up to July 16, 2010. For any shortfall in maintenance of statutory liquidity ratio (SLR) arising out of availment of this facility, banks may seek waiver of penal interest purely as an ad hoc measure. Read more