Search By Topic The Green Supply Chain Distribution Digest
Supply Chain Digest Logo

Supply Chain News Bites

Supply Chain Graphic of the Week: Chinese Manufacturing Prices Finally Headed Higher

 

Link Between Falling Chinese Prices and Low Inflation Globally is Eye Opening

Nov. 2, 2016
SCDigest Editorial Staff

Global and country-specific economists in many nations have been fretting about inflation levels continuing below target rates - and sometimes even deflation fears in Japan, Europe and at times the US - basically since the end of the Great Recession.

 

Weak demand and surplus capacities in most sectors are generally cited as the key factors in keeping price inflation low. But are those factors in turn really being driven by what is going on in China?

 

Look at the chart below from a recent article on Bloomberg.com, showing the percentage changes in the Chinese Producer Price Index (shown in the white line and tied to the left vertical axis) and changes in the global Consumer Prices Index (in the blue line and tied to the right vertical axis).

 

 

Roughly since the start of 2011, there have been incredibly similar patterns in those two indices, at least until the past couple of quarters. Prices of goods being made in China fell sharply from 2011 to near the end of 2012, then flatlined until mid-2014, when they began to drop sharply again, finally rising - or rather falling less quickly - in 2016. With that change in direction, those producer prices have just moved into positive territory for the first time in years.

 

While as we all know association does not equal causation, could it be that low and falling prices coming out of Chinese factories could be an important component of why inflation stays so low, despite extemely easy money policies in the US and across the globe?

 

As this chart shows, however, the dynamic may be changing. Evidence is that Chinese manufacturers are indeed at last starting to increase prices.

 

Bloomberg says the push to recover lost margins through raising prices - even as demand remains muted - was shared by the exporters of everything from clocks to hot tubs interviewed by Bloomberg in Guangzhou last week at a manufacturing trade show.

 

Most cited rising labor costs as creating an inflection point where prices must go higher for manufacturers to stay in business.

 

"China's return to positive growth in producer prices marks a very significant turning point in deflationary pressures both in China and globally," said Shane Oliver, head of investment strategy at AMP Capital Investors. "This is only step one, though. We are still waiting for step two: stronger global demand and trade."

 

Whether that comes unfortunately remains a very uncertain question.

 

Any Feedback on our Supply Chain Graphic of the Week? Let us know your thoughts at the Feedback section below.

 

Your Comments/Feedback

 
 

Features

Resources

Follow Us

Supply Chain Digest news is available via RSS
RSS facebook twitter youtube
bloglines my yahoo
news gator

Newsletter

Subscribe to our insightful weekly newsletter. Get immediate access to premium contents. Its's easy and free
Enter your email below to subscribe:
submit
Join the thousands of supply chain, logistics, technology and marketing professionals who rely on Supply Chain Digest for the best in insight, news, tools, opinion, education and solution.
 
Home | Subscribe | Advertise | Contact Us | Sitemap | Privacy Policy
© Supply Chain Digest 2006-2013 - All rights reserved
.