China is not exporting inflation to the world
- Chinese producer prices rose 7.8% in the year to February. The acceleration of producer prices has raised fears that China could meaningfully add to global inflation pressures. This is not likely. The price of something made in China and the price of that same article sold to a consumer are not the same thing.
- The United States publishes data on prices of Chinese imports, for goods where China has a significant market share. These prices reflect Chinese export prices plus international transport costs.
- There is no obvious relationship between Chinese import price inflation and US consumer price inflation. Since mid-2012 US imports of clothing from China rose in price 2%; overall US consumer prices for clothing fell 1.7%. Imports of computers from China fell in price 10%; US consumer prices of computers fell 32%. Imports of Chinese televisions fell in price by 9.6%; US consumer prices of televisions rose 2%.
- Much happens to an import after it arrives on the dockside, creating this inflation divergence. Advertising, further transport, warehousing and retail costs are added to the import price. These costs are local. Investors should focus on local price pressures, notably labor costs, when monitoring the return of inflation.