Inflation needs to be understood on two fronts, not just the commodity front. On the wage front we have a dynamic situation whereby inflation in Asia and Eastern Europe is running well ahead of that being realized in the West.
What China and Russia will have to deal with in the coming months is not unlike the ominous combo that Nixon faced here in the 1970’s – wage and price spirals occurring in tandem. Both countries look to be sustainably pushing towards wage inflation of +20% year over year growth.
When I posted the chart of Chinese wage inflation earlier in the week, I had questions in reply asking what the numbers might look like if I looked at urban workers versus those driving the numbers in rural China. Edge always lies in the question, and I think that is the one to ask. According to the Xinhua article on July 28th out of Beijing that was pulling numbers from the latest issued by the China National Bureau of Statistics, “urban workers' per capita salary averaged 12,964 Yuan (1,878 U.S. dollars) in the first half of this year, up 18 percent year-on-year.”
So, yes, the wage inflation number appears lower on the urban side of the ledger, however it’s still running at a considerably higher rate than reported Chinese CPI which is running around 8% for the same time period.
On Tuesday, we’ll have our eyes on the latest Chinese inflation report for July. It is global this time, indeed.