China has been a major source of deflation in recent years. It may now be a source of inflationary pressures. That’s because wages are rising more rapidly in China. Indeed, minimum wages for millions of workers were raised by 14% to 20% at the beginning of the year. The Chinese are also allowing their currency to appreciate. The yuan is up 4.7% since September 1. No wonder then that the prices of goods imported from China into the United States rose 2.8% y/y during April. That’s the highest since December 2008. These prices were falling in 2009 and mostly flat in 2010. Prices of goods imported from the so-called Asian NICs (Hong Kong, Singapore, South Korea, and Taiwan) were up 5.8% y/y in April, matching the previous record high during 2008.
Adding to inflationary pressures in the US is the rapid depletion in the supply of new cars caused by the shortage of parts made in Japan. This boosted the CPI index for new and used cars in April by 0.8% m/m, and 2.2% y/y. The three-month percent change is up 8.5% (saar), the highest since December 2009..
And what about rent inflation in the CPI? The concern is that falling home prices might boost tenant rent inflation as more people decide to rent rather than own their homes. In April, the three-month percent change of the CPI tenant rent index was up 1.7% (saar), based on a three-month average, about the same as recent readings this year. However, early last year these costs were falling.