Inflation is falling even in China
Core inflation is low in China… 1.4%. (link) Inflation is always pretty low in China due to weak labor share and weak domestic demand. But there is a concern that inflation will continue to fall as over-productive capacity reveals itself more and more. China is able to produce much more than there is demand for. Capacity utilization continues to fall.
The benchmark interest rate in China, which is like our Fed rate in the US, has been constant at 6% since mid-2012.
Keep an eye on China… They are having problems. I wrote about China having problems this year, first back in January, then back in June. I see their inflation falling further. There will be pressure to lower their benchmark interest rate. But China may want to keep the benchmark up as part of their re-balancing program to discipline investment.
Weak inflation pressures in China are part of weak inflation pressures globally. Labor share has fallen this century from China to many advanced countries, Japan, Europe, US and … does it matter who else? The biggest consuming economies are lowering their domestic demand potential by lowering labor share… Is it any surprise that low nominal rates are ineffective to raise inflation?
You and I have both made comments on China and yes it is all about capacity, Labor Capacity. A billion or so people thrashing about is not something which can be ignored and will not be ignored.
Maybe Mao allowing a wheat famine had the right idea.
There is no limit to demand apart from what people choose to make it. The reason that domestic demand is so small in China is because the government conspires to undervalue the currency. Look at the history of Japan, how its ordinary people went in a single generation from very poor, to well off, almost all via increasing real exchange rates.
No chance the Chinese are not paid according to the value of their Labor? Come on, when I cost model manufactured components in China; what do you believe I use for unburdened Labor Rates?