September 7th, 2011
Econintersect: It just seems prices are rising everywhere - much more than the 3.6% price inflation rate reported by the BLS. Walking down the aisles of Walmart, this perception is reinforced.
Depending on who you believe, China imports are between 46% and 90% of Walmart products (Walmart does not report this percentage). Simple unscientific observation tends to support the lower percentages. What we know is that Walmart is a big importer according to the Journal of Commerce.
Wal-Mart remained the No. 1 importer of containerized ocean cargo in the latest annual ranking of The Journal of Commerce Top 100 U.S. Importers and Exporters, increasing its shipping volume into the United States 1.8 percent in 2010.
The world’s largest retailer imported 696,000 20-foot equivalent units last year, up from 684,000 TEUs in 2009. The company also was No. 39 on the Top Exporters 2010 list with 28,000 TEUs shipped out of the U.S.
Not trying to single out Walmart, the prices everywhere seem up higher than 3.6%. A NY Fed study says one reason is price inflation in Chinese exports - and believes this trend will continue for some time.
Since mid-2010, we have started seeing upward pressure on prices of consumer goods from China. This coincides with the RMB appreciation against the U.S. dollar, increased pressure on wages, and inflation in China. Going forward, the demographic shift in China along with efforts to encourage faster household income growth suggest the upward trend in prices of Chinese goods will continue.
This study lays the blame at the foot of a demographic shift in China.
Structurally, China is generally acknowledged to be undergoing a profound demographic shift to a rapidly aging society at an unusually early stage in economic development. China’s prime manufacturing cohort of people ages fifteen to thirty-nine has already peaked in size, and the United Nations projects that the working-age population as a whole will peak sometime over the next decade (see chart below). This implies that the days of seemingly limitless “surplus” labor supply may be nearing an end. And indeed, anecdotal reports of labor shortages in China’s coastal manufacturing provinces have surfaced periodically since at least 2003 (see, for example, Financial Times and “Chinese Workers Get Perks—Labor Shortage Spurs Firms to Court Factory Employees Pressure on Pay—and Prices,” Wall Street Journal, August 16, 2004)—about the time manufacturing unit labor costs started to rise.
The data itself does not support the premise of this article or the Fed study - as the BLS is not reporting any Chinese price increase which exceeds the USA's own price increases.
Comparing the BLS CPI-U and the BLS China Import Price Index show over the last year - both indexes have been rising at approximately the same rate.