In the first quarter of the year, 13 provinces in China have revised their minimum wages by 20.6% on average. So this is quite in-line with the pledge by the government in their 12th five-year plan to increase the income of Chinese people, and this is certainly the crucial step if one would like to have a more consumption-driven Chinese economy. In the short-term, however, wage inflation is not exactly a good piece news as the government and the People’s Bank of China are fighting inflation.
In Shanghai, truck drivers went on strike and protested against rising fuel prices and various fees charged by the government. This under-reported event went on for a few days, and the government responded finally by promising some reductions in fees. It is unclear if the strike has been ended, although the government’s spokesman said all ports are operating normally.
Inflation hit 5.4% in March, and is edging higher still. As the GDP figure and power consumption suggested that strong growth remains intact for now, I believe the government has sufficient room for now to tighten monetary policy more aggressively before any significant slowdown is evident (although I think it is not possible to have any meaningful drop in inflation without any meaningful slowdown). Options like interest rate hikes, reserve requirement hikes, and faster Chinese Yuan (renminbi) appreciation are on the table.
This article originally appeared here: China Economy: Two Updates Concerning Inflation
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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