China is facing an upsurge in inflationthat has pushed the central bank into more aggressive efforts to cool the economy. Given that this year has also seen a wave of big wage increasesfor manufacturing workers, could China now be facing the risk of spiraling inflation, where higher wages and higher prices feed off each other?
The first place to look for an answer is in where inflation is coming from. The National Bureau of Statistics saysfood prices were up 10.1% from a year earlier in October, while non-food prices rose just 1.6%. Combine the two and you get the headline 4.4% jump in the consumer price index, the fastest in two years.
The villain of the piece seems to be food prices: An unusually bad year for natural disastersin China led to domestic supply shortages, and international commodity prices have also been on a tear.
So what about all those factory worker pay increases?
Non-food inflation is the main measure of core inflation in China, and is where wage gains would normally be expected to show up. Core inflation, says Louis Kuijs of the World Bank in Beijing, 'is basically determined by wage inflation in manufacturing.'
The World Bank's latest China Quarterly, of which Kuijs is the main author, found that 'unit labor costs in manufacturing rose significantly in the first three quarters of 2010 because of the particularly high wage increases granted earlier this year.'
Yet China's core inflation, after recovering from declines in 2009, has been pretty steady around 1.5% this year. Manufactured goods don't seem to be contributing much to the gains in the consumer price index. The biggest contributor to non-food inflation is housing; that component of the index, which mostly reflects rental costs and utility bills, was up 4.9% in October. Some other prices â ' in particular, clothing and transportation -- are actually falling.
The World Bank says overall inflation in China, while likely somewhat higher than in the past, is unlikely to get out of control. A key reason: The trend in unit labor costs â ' wages paid per unit of production â ' still looks good.
The gains in unit labor costs this year came after outright declines in 2009. Overall, the bank's data suggest, unit labor costs in China have barely budged since 2005. 'The manufacturing sector tends to be able to absorb wage increases through productivity growth,' Kuijs says. 'We have no strong reason to believe this has changed.'
China's changing population structure, with fewer and less mobile young workers, is still likely to keep pushing salaries up. Katherine Lewis, an analyst at IHS Global Insight who tracks labor costs globally, says she expects Chinese workers to get annual raises of 9% to 12% through 2020. 'The wage gains in 2010 are not at all exceptional' in that context, she says. But companies have been able to offset those increases by getting more out of their workers, so they don't face as much pressure to raise prices.
The changes in the labor market that are leading to higher wages could show up in other kinds of inflationary pressure, argues Deutsche Bank economist Jun Ma.
'The logic is that most low-end manufacturing and service sector workers are rural migrants, and their urban wages are the 'opportunity costs' for them to remain on the farmland. If minimum wages rise 15% per year, which is very likely in our view, farmers will expect a similar increase in income from farming,' he writes in a recent report.
And the main way that is likely to happen, Ma argues, is through â ' you guessed it â ' higher food prices.
非食品类通货膨胀是中国核心通胀率的主要指标，这也是涨工资后通常会产生的现象。世界银行（World Bank）驻北京经济学家高路易（Louis Kuijs）说，核心通胀率基本是由制造业工资上涨所决定的。高路易是世界银行最新的《中国经济季报》（China Quarterly）的主要作者，他发现，制造业单位劳动力成本在2010年前三季度大幅上涨，因为今年早些时候工人的工资大幅增加。
中国的人口结构正在发生变化，年轻工人越来越少、流动性越来越弱，这仍然可能继续促使薪水上涨。跟踪全球劳动力成本的机构IHS Global Insight分析师路易斯（Katherine Lewis）说，她预计从现在到2020年，中国工人每年将会得到9%到12%的工资增幅。她说，这样看来，2010年的工资增幅是正常的。但各企业能够从工人那里获利更多，从而抵消这些增幅，因此他们不会面临涨价的太大压力。