High labor costs, consumer spending driving inflation
Updated: 2008-06-18 07:22
By Amy Lam(HK Edition)
|
|||||||||
Slowing labor reallocation and consumption growth will be the main drivers of mainland inflation in the near future, according to Russell Napier, a consultant with CLSA's Asia-Pacific Markets.
Cheap labor from workers traveling from inland cities to work along the coast used to be the main way mainland inflation was driven down in the past. But urbanization has provided closer opportunities for laborers, reducing their need to travel.
"Manufacturing goods and services will lead the inflation," Napier said at a luncheon yesterday, noting that 75 percent of villages have no workers left to send to the coasts, and the urbanization rate has dropped from 5 percent to near 3 percent.
Meanwhile, Napier said the impact of the growing level of consumption on the GDP will cause secondary inflation as the mainland develops into a market economy.
|
A customer shops for clothes at a store in Beijing. The runaway inflation on the mainland has slowed down in recent months. AFP |
Consumption has been encouraged by factors such as new labor laws and the renminbi's appreciation.
Napier said the mainland "is moving toward becoming a society of consumption like America was in the 1920s - people will borrow money to spend".
The mainland's inflation fell in May to 7.7 percent as food prices peaked. Yet, economists believe that food and energy prices will still be the top economic issue on the mainland and in Southeast Asia.
The growing inflation will hurt corporate earnings, raise interest rates and lower asset values in western regions of the mainland, he concluded.
(HK Edition 06/18/2008 page2)