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Saturday, December 11, 2010

Ohh, Chinese Hurting

Chinese economic stats for November:
In November, the consumer price index went up by 5.1 percent year-on-year. The price grew by 4.9 percent in cities and 5.6 percent in rural areas. The food price went up by 11.7 percent while the non-food price increased by 1.9 percent. The prices of consumer goods went up by 5.9 percent and the prices of services grew up by 2.6 percent. Grouped by commodity categories, in November, of the eight categories of commodities, six of them experienced prices rise and two witnessed prices decline. Of which, prices for food went up by 11.7 percent; prices for tobacco, liquor and articles rose by 1.6 percent; price for clothing went down by 0.7 percent; prices for household facilities, articles and maintenance services went up by 0.7 percent; health care and personal articles rose by 4.0 percent; transportation and communication went down by 0.7 percent; recreation, education, culture articles and services grew by 0.6 percent, and housing went up by 5.8 percent. In the first eleven months, the year-on-year change of consumer price was up by 3.2 percent, or expanded by 0.2 percentage point as compared with that in the first ten months of this year.
That's pretty rough for most Chinese. On average they spend over one third of their incomes on food. Note the difference between the inflation rates between clothing, food, medicine and transport/communication. More discretionary categories seem constrained; more basic categories are escalating.

The pace of consumer inflation continues to escalate; in November alone, consumer prices rose 1.0% in cities and 1.3% in rural areas. That is not an annualized rate, but the rate of increase for one month. Food prices rose by 2% in just November.

The Chinese raised their bank reserve ratios to 18.5% (last rise this week, three raises this month). They'll probably have to hike interest rates now, because so far they aren't making progress on inflation.

PS: A portrait of Spreading Containment courtesy Treasury:

How Mr. Market changes QEasing to QTightening.

The containment is spreading at a shocking rate.
"The containment is spreading at a shocking rate."

It sure doesn't take a surgical steel butter knife to cut through the gallows humor these days, lol.

The containment certainly spread to TIP.

I owned TIP in my IRA through a dividend reinvestment plan. I sold it in August and have been sitting in cash since then. I watched it rise without me then watched it crash without me. It's been a very rough month for that fund, much to the surprise of its "sure thing" quantitative easing fans.
Wait until we impose tariffs. We will export wage deflation
alongside staples inflation. Good times for all.
I'm not up on this technically, but isn't this just all that excess money that we've been creating? Seems like it's slopping around into other countries. If it's a global economy, it's gotta happen that way.
Tom - roaring with laughter. Except it is not really funny when you go shopping, is it?
Teri - yes, but when it comes to excess money creation, the Chinese beat us in spades.

However they are now experiencing the results.... When you see the pattern of inflation in basics and deflation in less-basics, you know inflation is nearing the economy-crunching point.

Coming soon to a theater near you - The Inflation Blob. It will start oozing up out of drains and generally appearing where and when we least expect it.

Inflation in India is a problem as well. Food inflation fell a bit, but now appears to be heading up again.
"Coming soon to a theater near you - The Inflation Blob. It will start oozing up out of drains and generally appearing where and when we least expect it."

Silly Putty Monetary Policy

"The material is also used therapeutically for stress reduction."

"As a bouncing putty, Silly Putty is noted for its unusual characteristics: it bounces, but breaks when given a sharp blow; it can also flow like a liquid and will form a puddle given enough time."

"Silly Putty is flammable."

Perfect for clogging deflationary drains!
Perfect for stopping inflationary blobs!
Perfect for stressed banks!
Perfect for "temporary" liquidity!
Perfect for heating homes!
Perfect for snarky consumers!

"Silly Putty will dissolve when in contact with an alcohol. However, after the alcohol evaporates, the material will not exhibit its original properties."

Okay, okay. Maybe not the best tool for keeping a party going. Damn. I really thought I had it that time. Back to the drawing board.
This sorta kills the growth story of the "developing Chinese middle class". Those aren't high-value consumer goods categories experiencing inflation. The Chinese leadership seems to be about out of time. "Out of speed, out of altitude, out of ideas", as the saying goes.

I guess we should be watching for capital flight, but it'll probably be under the table and hard to discern.

w/v: "whous", as in "Who, us? Provide the world's new economic engine?"
Bank reserves? Is that some kind of Oriental monetary philosophy?
Great interactive yield curve chart! Can I ask you for the source/link?
David - Treasury just redid its website, and the link right above the graph takes you to the page with the graph.

You can generate a lot of types, but I warn you that longer sequences are dead slow. Just download the data and make your own - it will be way faster.

Also the FRB reports with the data downloads now include a charting function.
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