Inflation in China rises at a fast pace

For K. K. Lam, a 37-year-old accountant in Guangzhou,
inflation means higher prices for pork and for vegetables like bok choy.

For Allen Dong, the sales manager for a home appliance
manufacturer 700 miles to the northeast in Ningbo, inflation means trying to
persuade retailers to pay more for dehumidifiers so his company can cover
rising costs for wages and raw materials.

From street markets to to corporate offices, consumers and
executives alike in China
are trying to cope with rising prices. The National Bureau of Statistics
announced on Saturday that consumer prices in China were 3.5 percent higher
compared with a year earlier, the largest increase in nearly two years.

To make matters worse, inflation over the short term also
seems to be accelerating. A seasonally adjusted comparison of August prices to
July prices showed that inflation was running at an annualized pace closer to
4.8 percent.

Prices are rising in China for reasons that many Americans or
Europeans might envy. The economy is growing, stores are full and banks are
lending lots of money, according to other statistics released by the government
on Saturday. Compared with August of last year, industrial production rose 13.9
percent last month, retail sales increased 18.4 percent, bank lending climbed
18.6 percent and fixed-asset investment surged 24 percent.

All four categories rose slightly more than economists had
expected, in the latest sign of the Chinese economy’s strength even as recoveries
seem to be flagging elsewhere.

Separate data released on Friday by the General
Administration of Customs showed that Chinese demand for imports also remained
surprisingly strong. The trade surplus narrowed to $20 billion last month, and
would have been nearly in balance without China’s $18 billion surplus with the
United States.

But so much cash in the Chinese economy chasing a limited
volume of goods is pushing up prices. Inflation is starting to become
troublesome, especially for young people entering the work force and retirees
on fixed incomes.

Young people with vocational school degrees typically earn
$200 to $300 a month in factories near the coast these days, and somewhat less
in the Chinese interior. Rising prices have prompted many to ask for bigger
paychecks, and blue-collar incomes have increased faster than inflation.

But salaries for recent college graduates, at $300 to $500 a
month in coastal areas, have actually declined in the last few years, even
before adjusting for inflation. A rapid expansion of universities over the last
decade has resulted in more young men and women with undergraduate degrees than
companies are ready to hire, except at lower pay.

And as in many countries, retirees are among the most
vulnerable to inflation. Ms. Lam said her own mother lived on a pension of just
$150 a month.

Rising wages are putting pressure on companies to increase
their prices. Mr. Dong, the sales manager at the Ningbo Deye Domestic
Electrical Appliance Technology Company, said the company had to raise wages by
10 percent Young people with vocational school degrees typically earn $200 to
$300 a month in factories near the coast these days, and somewhat less in the
Chinese interior. Rising prices have prompted many to ask for bigger paychecks,
and blue-collar incomes have increased faster than inflation.

But salaries for recent college graduates, at $300 to $500 a
month in coastal areas, have actually declined in the last few years, even
before adjusting for inflation. A rapid expansion of universities over the last
decade has resulted in more young men and women with undergraduate degrees than
companies are ready to hire, except at lower pay.

And as in many countries, retirees are among the most
vulnerable to inflation. Ms. Lam said her own mother lived on a pension of just
$150 a month.

Rising wages are putting pressure on companies to increase
their prices. Mr. Dong, the sales manager at the Ningbo Deye Domestic
Electrical Appliance Technology Company, said the company had to raise wages by
10 percent a year, while raw material costs were also climbing.

“It is impossible to transfer our cost increases entirely to
our customers, because if we do so, they will all run away,” he said. “We are
currently doing a study of our assembly line work processes to see where we can
achieve greater efficiency.”

But as the powerful growth in fixed-asset investment last
month showed, Chinese companies are still responding to rising prices by
building more factories, office buildings and other equipment, instead of
cutting back.

Pan Ning, the sales manager at the Newsunda Industries
Company, a manufacturer of school bags and pocket calculators based in Shantou,
said labor and raw material prices had been climbing by 5 to 10 percent. But as
school years have begun around the world in the Northern Hemisphere, Newsunda
has been able to raise the prices it charges to cover the increased costs, Ms.
Pan said.

Chinese officials have said for many years that they regard
5 percent inflation as unacceptable, and they a year, while raw material costs
were also climbing.

“It is impossible to transfer our cost increases entirely to
our customers, because if we do so, they will all run away,” he said. “We are
currently doing a study of our assembly line work processes to see where we can
achieve greater efficiency.”

But as the powerful growth in fixed-asset investment last
month showed, Chinese companies are still responding to rising prices by
building more factories, office buildings and other equipment, instead of cutting
back.

Pan Ning, the sales manager at the Newsunda Industries
Company, a manufacturer of school bags and pocket calculators based in Shantou,
said labor and raw material prices had been climbing by 5 to 10 percent. But as
school years have begun around the world in the Northern Hemisphere, Newsunda
has been able to raise the prices it charges to cover the increased costs, Ms.
Pan said.

Chinese officials have said for many years that they regard
5 percent inflation as unacceptable, and they have shown a willingness to clamp
down on bank lending and investment whenever annual increases come close to
that level. They have taken some of these steps in recent months, but more
recently eased back on lending controls as some Chinese economists suggested
that domestic demand might not be as strong as the August data showed.

For now, many Chinese consumers are irked by rising prices
for everyday necessities.

“I honestly don’t know how young people starting out in the
work world manage,” Ms. Lam said. They pay nearly half their salaries for their
own room in a shared apartment in a bad neighborhood, she said, “and if you add
in food and transportation, there will be nothing extra left in your salary to
send home.”

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