February 22, 2005
Chinese inflation rate continues to decline.
The Chinese seem to be doing a pretty good job of managing their rapidly growing and changing economy, according to this
article via Yahoo News. Inflation is down for the fifth straight month, an indication that something is going well. Briefly, harvests were good and food is cheap.
BEIJING (Reuters) - Chinese annual consumer price growth fell for a fifth straight month, declining to 1.9 percent in the year through January partly due to easing food inflation and providing more evidence that pressure to raise interest rates has abated.
... The annual inflation rate has been declining since it reached a seven-year high of 5.3 percent in July and August of last year. It is now at its lowest since the year through October 2003, when it rose 1.8 percent.
Moderating food inflation, the result of good harvests, are the chief reason for the lower inflation. Food makes up an estimated 35 to 40 percent of the index.
Grain cost 14.2 percent more in January than a year earlier, but its pace of inflation slowed from rates above 30 percent last year. Vegetable prices fell 10.2 percent from January 2004, after a rise of 1.0 percent in the year through September and of 5.8 percent in the year through August.
The entire article gives a nice overview of the current state of China's domestic economy, something you don't hear too much about. The article also says that wages are beginning to rise, which may come as a surprise to those who claim China's growing prosperity is due entirely to its cheap labor.
Note that food costs are included in the inflation figure. In the US, the standard inflatioin figures you hear typically exclude food and energy, altho I've never been able to understand why. Well, they claim they're too "volatile", which doesn't make sense to me. I would think that would make it even more important to include them. But I'm not an economist, so what do I know?
Well, there is one thing I do know. And that is that in corporate America, "inflation" is a code word for "wage increases". It doesn't really represent the prices of most goods or services. At least, that's how Alan Greenspan thinks of it. Because of his depression-era economics and his corporate perspective, he thinks of wage increases as a "problem", something that damages or at least threatens the economy. When in fact, they represent increased purchasing power and are generally the sign of a growing and prosperous economy. The failure of corporate America to increase wages as profits and costs go up is the major reason that the American economy has become so stagnant in recent years. People can't spend more money if they don't have more. It's as simple as that, but the great minds in the business community can't see it.
