Chinese price hikes could push inflation here
November 17, 2004
Filed under Features
With global oil and commodity prices soaring, Chinese manufacturers are being squeezed like never before, reports the Wall Street Journal, a move that could mean increased prices for powersports machines, as well as parts and accessories. And unless commodity prices start to ease soon, some economists believe that China’s next big export to the U.S. will be in the form of rising inflation.
Some economists have long argued that the ability of Chinese firms to absorb cost increases has provided a cushion against inflation for the rest of the world. By not passing along in full the rising costs of oil, steel, copper, zinc and other items, these companies are helping to sustain one of the key supports of global economic growth: the big-spending U.S. consumer.
But a number of Chinese manufacturers said they are starting to run out of ways to keep a lid on prices. “Chinese prices are the lowest on the street,” says Dong Tao, chief Asia economist at CSFB. “If China manages to raise prices to the U.S.,” it could provide room for non-Chinese manufacturers to raise prices, too, and soon you have the beginning of an inflationary cycle.
Some Chinese manufacturers are developing strategies to increase prices higher without scaring off customers. Yinhe Motorcycle has added new safety features to its four-wheeled ATVs for children, including a remote control that allows parents, while overseeing their children, to cut the engine.
Not all agree on the seriousness of the situation. China’s exports accounted for 10% of all exports to the U.S. last year, notes Huang Yiping, Citigroup’s China economist.
That equates to 1.4% of U.S. gross domestic product and 2% of total personal-consumption expenditure. Huang says that it’s a “big hypothesis” to suggest China could influence U.S. inflation.