China’s consumer price level to fall in H2
- First off, you may ask “what does Chinese inflation have to do with China sourcing”. Actually, a lot. For example, Chinese employees are pushing for higher and higher salaries to offset inflation. This adds costs to production and drives up price to foreign buyers.
- There is a lag time between when your order is placed and when the supplier gets paid. Sometimes it can be many months. If the supplier in China has a feeling that his costs are going up, he is going to try to inflate the sell price to cover his perceived risk. Many factory bosses are financial conservative, so they are probably building in more margin than the actual inflation requires.
Result- higher prices for wal mart shoppers.
The most interesting sentence from this article is “Chinese CPI rose by 5.5 percent year-on-year in May, well above the government’s 2011 inflation target of 4 percent.”
Keeping in mind that the China daily is the mouthpiece of the central government, so some things jump out
It is rare that the government admits that they failed to meet a previously announced target.
By announcing that targets have not been met, it is a clear indication that the central government is taking the rising CPI serious.
It also implies that heads could roll if the situation is not corrected.