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China’s Food-Driven Inflation Won’t Hit Global Economy Soon

Sept. 8 (Bloomberg) -- China’s price pressures are driven primarily by food costs, and it will be some time before the country will export inflation to the rest of the world economy, according to speakers at a meeting hosted by Bloomberg Link.

Most of the fastest rising prices in China are for food products like pork and vegetables which have locally set costs, so price pressures are unlikely to spread through the global economy, said Constance Hunter, chief economist at Aladdin Capital Management LLC in Stamford, Connecticut.

“It’s going to be some time before they can export inflation” to countries outside China, Hunter said at the Bloomberg Global Inflation Conference in New York. “Most food is really traded locally.”

Inflation remains a major concern of central bankers in Asia’s emerging markets, while policy makers in developed nations are focused on a slowdown in growth. Chinese inflation accelerated to a three-year high of 6.5 percent in July, prompting Premier Wen Jiabao to say Aug. 31 that his top economic priority is stabilizing prices.

Labor costs are increasing in China, though from “very low levels,” and while they add to inflation, they also allow Chinese consumers to purchase more foreign-made goods, Hunter said. “China can’t consume more of the world’s goods until its wages go up,” she said.

Rising inflation in China is more worrisome in terms of its impact on the standard of living in the U.S., because China has been a source of low-cost goods that have been bought by American consumers, said Jerry Webman, chief economist at OppenheimerFunds Inc. in New York.

‘Free Ride’ Ending

“This kind of free ride that we’ve had” will begin to weaken as price gains in China are passed through to products imported into the U.S., Webman said at the Bloomberg Link conference.

“It’s simply a matter of a lower standard of living” in the U.S. rather than a concern that Chinese inflation will trigger an inflationary spiral in the world’s largest economy, Webman said.

Bernard Yeung, dean of the National University of Singapore’s Business School and also a speaker at the Bloomberg Link meeting, said China has been “a source of absorbing inflationary pressures” that helped support global growth. While he is not worried about inflation in China, Yeung said he doubts the nation will be able to continue absorbing inflation and providing investment-driven growth in coming months.

China’s central bank raised interest rates five times and ordered lenders to set aside more cash deposits as reserves 12 times since the start of 2010 to contain inflation.

Consumer-price gains in China may have slowed to 6.2 percent in August, according to the median estimate of 26 economists surveyed by Bloomberg News. The inflation data are due tomorrow. The government’s full-year target for inflation is 4 percent.

To contact the reporters on this story: Paul Panckhurst at ppanckhurst@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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