The government as a rule has little use for market analysts and economic commentators (and the sentiment often is reciprocated). But one welcome artifact of the constant parsing of inflation data to prove it is not really as bad as your personal experience suggests is a plethora of inflation sub-indices. That way the government can say, “Yes, the price of gasoline is killing you, but look at how well behaved the price of stainless steel fasteners has been.”
If we index the PPI sub-indices to September 2005, two months after the CNY began to revalue, we find the most rapid price acceleration in metals, minerals, chemicals and commodities, ex-fuel. These are raw materials markets in which China is a key and large-scale buyer. In contrast, sub-indices involving finished and manufactured products such as apparel, machinery, leather, and furnishings have had only mild price increases.
It appears the greatest effects China has within the producer price world are the result not of a stronger CNY but rather of sheer physical demand for materials. In fairness, a stronger yuan strengthens China’s claim on these materials, but the same stronger yuan has no visible impact on the prices of finished producer goods.
We should expect uneven behavior within CPI sub indices as well. Here the most rapid price increases since September 2005 have occurred in medical expenditures, services, and housing, none of which are particularly exposed — yet — to import competition. Apparel, heavily exported from China, scarcely has moved higher in price. Once again, the higher prices expected to result from a stronger yuan are overwhelmed by other factors. If you want to see prices rise in a consumer price sub-index, disrupt the market via government controls and insurance intermediaries and you will duplicate the American experience with medical expenses very quickly.
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