We posted yesterday about the end of Chimerica and have written several pieces on the rapid increase in Chinese manufacturing wages and end of the secular disinflation caused by the entry of the country’s labor force into the global economy. Li & Fung, which sources goods for WalMart and the Gap, just announced that “a new era in sourcing with higher prices” has begun and that manufacturers will start passing on the rising costs raw materials and Chinese labour to customers. The FT reports,
William Fung, the company’s group managing director, said heightened competition for labour in China, which has resulted in wage increases of about 20 per cent this year, heralded the end of China-led deflation for the world economy.
This, of course, could all change if China’s economy experiences a hard landing, but you better prepare for sticker shock at WalMart, the Gap, and Costco in the near future. This is also a major factor why we believe the U.S. may be on the verge or in the midst of manufacturing renaissance. Stay tuned.