I'm not a professional economist, but what I glean from my reading is that
the conflicting analyses invariably fall back on China as both the source of
inflation (demand for commodities) and of deflation (supply of low-cost
manufactured goods). Since, as Reich notes, labour costs account for 70% of
inputs, it's reasonable to conclude that the Chinese and other emerging
economies have exerted a stronger downward pressure on wages and prices in
the more developed capitalist countries than their demand for commodities
has lifted them. While it's true Chinese coastal wage levels are rising - an
argument used by the inflationists - it's hard to accept that the increases
would have a significant effect on the larger picture, and would be offset
in any case by the greater ease with which capital is now able to relocate
in lower-wage areas such as China's interior and Vietnam. In addition to
speculation, Reich could perhaps also have mentioned that the rise in core
CPI also seems to have been distorted by the questionable way housing costs,
accounting for 40% of the index, are measured in relation to rents (home
ownership costs are "imputed" to have risen in line with rental increases).
Am I wrong is assuming that a panic-stricken run on the dollar represents
the single greatest threat to price stability - in both directions, first
way up as import costs soar and then way down as demand collapses?
