The story goes that higher wages in China will lead to higher import prices in the developed world and China will export inflation. At first glance, that is indeed what the chart seems to suggest. However, US data shows that year-on-year (y-o-y) change in import prices from the Asean countries in April was much higher at 8.6%, while that from Asia’s newly industrialized countries was 5.8% y-o-y. In fact, in early 2008, the price of imports from China to the US grew at a much higher rate, peaking at 5.2% y-o-y in July. This was also the period when commodity and oil prices were high, suggesting that it is not so much of wage inflation as commodity and energy price inflation that is responsible for the higher prices of imports from China into the US. Incidentally, the y-o-y growth in import prices of non-manufactured goods from non-industrialized countries to the US in April 2011 was a startling 38.8%, showing the strength of the commodity price rise.
Also see | US import prices from China (PDF)
Graphic by Yogesh Kumar/Mint
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