This piece first appeared on the Saga Magazine website xx Xxxx 2007
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Inflation returns (Made in China)

 

Whatever the question the answer seems to be ‘China’. Who uses a third of the world’s coal? Who is pushing up the price of oil? Who is responsible for the falling dollar? China. Strangely no-one has blamed China for the rise in inflation this month to 4.2%. National Statistics, which published the figures this week, tells us that petrol prices are up (no surprise there), air fares have risen (especially when you add on the fuel surcharge and the cost of checking in and carrying luggage), and so has food, especially bacon and strawberries (What has Jamie Oliver been suggesting now?).

More worrying was the rise in the price of furniture, household appliances, and small electrical goods. Because most of these items have a label on the bottom saying ‘Made in China’. For years prices in the West have been kept down by the growing efficiency of the great factories in Guangdong using labourers from rural China who thought earning £1 a day was luxury. Not any more. Wage inflation is hitting China. Migrant wages are up 17% this year – and 25% in Shanghai. One rumour dates it back to February when families, scattered all over China for their jobs, returned home for New Year. They swapped stories of what they were paid and went back to work demanding a pay rise. And there are other price pressures on the factories. After several safety recalls of Chinese made toys quality control is making goods more expensive. And there is growing international pressure to reduce carbon emissions. So the great engine that was keeping prices down here by making them cheaply over there is going into reverse.

Normally the Bank of England would control inflation here by putting up interest rates. But the Bank is now under great pressure to do the opposite – to cut rates to offset the damage done after the world economy seized up in response to the sub-prime mortgage crisis, which could now cost $1 trillion, and the credit crunch that followed. This month it resolved the dilemma by leaving rates unchanged.

Meanwhile inflation rises. It is now above 4% again where it has been for most of the last year. It is 17 years since we saw that – and then it was heading down. But all the signs indicate that this time it could be heading up. Made in China.

 


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