Inflation in Asia Pressures Prices for Western Consumers
The free ride for American consumers is ending. For two generations, Americans have imported goods produced ever more cheaply from a succession of low-wage countries — first Japan and Korea, then China and now increasingly places like Vietnam and India.
But mounting inflation in the developing world, especially Asia, is threatening that arrangement, and not just in China, where rising energy and labor costs have already made exports to the United States more expensive, but in the lower-cost alternatives to China, too.
“Inflation is the major threat to Asian countries,” said Jong-Wha Lee, the head of the Asian Development Bank’s office of regional economic integration.
It is also a threat to Western consumers because Asian exporters, even in very poor countries, are passing their rising costs on to customers.
Developing countries have had bouts of inflation before. Indeed, some are famous for them, like Brazil, which experienced triple-digit inflation in the late 1980s and early 1990s. But two things make this time different, and together promise to send prices higher at Wal-Mart and supermarkets alike in the United States, just as the possibility of recession looms.
First, developing countries now produce nearly half of all American imports. Second, inflation in these countries is coming at the same time that many of their currencies are rising against the dollar.
That puts American consumers in a double bind, paying at least some of producers’ higher costs for making their goods, and higher prices on top of that because the dollar buys less in those countries.
Asian businessmen say they do not have a choice about charging more. “This is a tough time to do business,” said Le Hoai Vu, the sales manager for the Quang Vinh Ceramic Co. here in northern Vietnam.
The company just increased by up to 10 percent the prices it charges Pier 1 Imports in the United States for hand-painted vases because labor costs are rising 30 percent a year.
Overall, in Vietnam, one of the fastest-growing destinations for manufacturing investments and one of the fastest-growing sources of American imports, prices rose 19.4 percent from March 2007 to March 2008.