Thursday, March 24, 2011

Prepare for Inflation: "The Era of Cheap Chinese Goods is Over"

Here comes the price inflation.

The era of cheap goods from China is coming to an end, one of the biggest suppliers of Chinese goods to western retailers warned on today, according to FT.

Li & Fung, which supplies products for companies like Walmart and Gap in the US and Debenhams in the UK, said “a new era in sourcing with higher prices” has begun as manufacturers pass on the rising costs of raw materials and Chinese labour to customers.

Bruce Rockowitz, president of Li & Fung Trading, said: “The biggest topic on the minds of everyone in this business is that higher prices are really here to stay. At this point, retailers are not sure what they can pass on to consumers and what they cannot."

It's technically incorrect to say that manufacturers "pass on" price increases, as the company said. When a manufacturer is facing higher prices, what is really going on is that it is facing higher bidding for its raw materials. That's what Li & Fung is facing.

As Rockowitz more correctly notes, it is not clear that consumers will buy in the same quantities, given the higher prices, but the higher prices are here to stay, because Li & Fung are facing higher prices for their inputs.

This same higher price phenomena will be experienced by retailers through out the United States, first by clothing retailers, but overtime it will be much more broad based than clothing retailers. The Fed has printed a lot of money and that money has gone around the world and is now allowing foreigners to bid for goods against Americans.

It won't be pretty, but it will be expensive for all of us.


  1. Who's long on WMT?

  2. I thought producers absorb price increases (because if they could've charged higher prices they'd have done so before to reap higher profits, or so Rothbard argues.) Regardless, with a reduction in profit margins supply will shrink and so prices will go up, so I guess in the end consumers still suffer either way, alongside producers. Thank you, central banking system.

  3. @Inquisitor

    Producers (and retailers)don't always know the exact supply and demand curves they face. Thus, they may not raise prices they could have earlier, until they are faced with rising input prices.

    It's not that input prices always force higher prices. It's that the input prices sometimes signal to producers and retailers that they need to try higher prices or, possibly, go out of business.

  4. With higher prices, not as much will be bought and it will all roll back as "retail therapy" diminishes for a huge segment of populations around the world who would rather eat than have a closet full of clothes they don't need.

  5. AUDIT THE FED!!!!!

  6. We printed so much money that our money has devalued. This also lead to the stock market crash and the increase in cost of living.