Weekly Updates
Weekly Updates
- Deflation—a broad-based decline in prices—has emerged across China’s price measures. Consumer, producer, and export prices are falling. Might China export deflation to the rest of the world?
- China’s consumer and producer prices are strictly local concerns. Food, for instance, is a large part of China’s consumer price basket—and China exports very little food. China’s producer prices cover goods mainly consumed within China. But falling export prices are a different matter. China is the world’s largest manufacturer. If China’s export prices are deflating, surely other countries’ consumer prices will fall?
- Life is not that simple. Much of the money a US consumer pays for something “made in China” will not go to China. For many products, less than half the price goes to the manufacturer. After the export price, there are transport costs, trade taxes, insurance, warehousing, retail costs, advertising, and so on. Profit margins will also vary along the supply chain—US retailers’ profits have risen from around 14% to over 22% of retail GDP in recent quarters.
- The relationship between China’s export prices and global consumer prices is therefore blurred. In fact, China’s influence on global inflation is more likely to come from its role as a large commodity consumer, influencing global commodity prices.
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