import inflation

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