If you are a steady Wal-Mart or Costco shopper you are in for some sad times… Both of these massive retailers buy over 90 percent of their merchandise from China. China, at this very moment, is entering an inflationary stage in its domestic economy.
My representatives in Hong Kong tell me that those Hong Kong residents who went to China to live because of the cheaper prices for rent and food are now returning. Rent, food and merchandise prices are going up on a daily basis. The cost of labor, the fundamental ingredient for price stability, is also rising.
Exporters are telling their American and European importers to expect higher prices.
Today, in Bloomberg, we received more hard evidence of this new and threatening general price surge…
China’s Faster Inflation Fuels Speculation Rate-Rise Near
By Bloomberg News, Nov 12, 2010
China’s central bank may raise interest rates within weeks after inflation accelerated to the fastest pace in 25 months in October, a Bloomberg News survey of economists showed.
The benchmark one-year lending rate will rise to 5.81 percent by year-end from 5.56 percent, according to the median forecast of 11 analysts polled after yesterday’s price data. The deposit rate may climb to 2.75 percent from 2.5 percent, the survey showed.
Price pressures in China’s economy may be exacerbated by the nation’s currency curbs and imbalances in trade and capital flows that Group of 20 leaders are meeting in Seoul to tackle. The central bank announced a 0.5 percentage point increase in lenders’ reserve requirements this week after the customs bureau reported that October’s trade surplus surged to $27.1 billion.
YUAN TIES TO DOLLAR ARE BREAKING
Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong, said yesterday that more interest-rate increases are “clearly on the way.”
The central bank raised rates last month for the first time since 2007 as part of an exit from crisis policies that included scrapping in June the yuan’s peg to the dollar.
A record expansion in lending has added to concern that China’s inflation, now centered on food costs, will broaden. In October, new lending was a more-than-forecast 587.7 billion yuan ($89 billion), a central bank report showed yesterday.
INFLATION ABOVE EXPECTATIONS
While the latest inflation number was above all 28 estimates in a Bloomberg News survey of economists, it matched rumors cited before the data by firms including Guoyuan Securities Co. in Shanghai.
“There’s talk of an interest-rate hike over the weekend,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “It’s quite possible given how inflation has accelerated.”
Dr. Pinna says:
China is now making the same mistake that Europe and the U.S. made in the last decade: Lending Money.
Lending Money makes bankers and consumers happy until payback time arrives!
Lending money inevitably leads to inflation of whatever object people want to buy; such as, houses, food, cars and clothing.
As the inflation in China grows and the cost of Chinese goods rises, we can anticipate that those goods will rise in cost in America as well. This will hurt the poor people of America who are living off the benefit of cheap Chinese goods and clothing.
Geithner and Obama have been begging the Chinese government to revalue their currency upward so that the negative trade balance will be reduced. They will get their way, and the poor people in the U.S. will pay the price.
Contrary to U.S. Government statements, American exports will not improve.
The Chinese people do not want the cheap goods made in the USA. Quality goods such as Boeing airliners and Caterpillar Tractors are already being sold.
DISPOSABLE U.S. INCOME
Inflation in the U.S. has already hit in the area of food. When it hits in the area of clothing and household goods, disposable income will drop.
When that happens, the Depression will deepen.