IS CHINA EXPORTING INFLATION?

THE ERA OF CHEAP CHINESE IMPORTS MAY COME TO AN END

The Economic Times, October 23, 2011

The great Chinese-led deflation in goods prices may have come to an end.

Beginning in the 1990s, the emergence of China as a major exporter first depressed and then held down the prices of many goods, helping to improve U.S. living standards. But recently, prices have begun to rise.

The change can be seen clearly in the Consumer Price Index for apparel. Because prices can be volatile, three-month moving averages are used to smooth the trends.

Prices are still well below where they were in 1991, a performance that no one would have expected at the time. Over the previous two decades, beginning in 1971, that index doubled.

But in the past few months, the index has begun to rise at the fastest rate in many years. This spring, prices were still about 9 percent lower than in late 1991. Now the prices are just 5 percent below the level of two decades ago.

The 12-month change in the index is now up to 3.6 percent, the highest since 1992. Over the past six months, the three-month average has risen at an annual rate of 7.6 percent.

Prices for apparel were broadly steady for most of the 1990s, before beginning a sharp descent in 1998 that continued until 2003. Much of the decline was because of imports from China, which forced down prices and allowed Chinese suppliers to supplant companies from many other countries. The declines continued at a slower pace for several more years, but prices now appear to have hit bottom in 2007.

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