Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: RealMuLan who wrote (14492)	11/2/2004 6:57:29 AM
From: Rarebird	Read Replies (1) of 116555

<People's Bank of China cannot put the INFLATION genie back into the bottle with a token increase in rates, when consumer prices have been climbing uncomfortably close to a seven-year high of 5.3 percent for four months.> China's producer prices rose 7.9 percent last month from a year earlier as the cost of crude oil, coal and steel products increased, according to Beijing-based Mainland Marketing Research, which compiles the monthly figures for China's own National Bureau of Statistics. It is China's producer prices which matter. When such prices climb, in leu of increasing the prices which China is selling at, the climb cuts into company margins and therefore earnings and profits. China can, of course, try to hand-off these higher production costs by raising their selling prices in the US, but they have another economic choice. They can let their own currency climb in value against the US Dollar. It is true that a higher Chinese currency would lower China's import costs and therefore, with a lag in time, their own producer prices but it would still mean higher end selling prices for Chinese goods sold inside the US market.

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