While rising prices alone are traditionally never seen by conventional economists as sufficient to push inflation into the stratosphere, due to the claim that flat wages prevent a comparable rise in spending, the same can not be said about the combination of rising prices and wages. In fact, when that happens, there is little that a deflationist can assert will offset the price pressure. And it just happened in the epicenter of the Chinese frothy excess liquidity driven inflationary bubble, after Shanghai just announced it will hike minimum wages by 10%. This also means that labor costs are about to surge, corporate margins for Chinese corporations will plummet, and CEOs will be forced to sell their trinkets to the US at higher prices to offset the margin plunge. Which in turn means prices for "commodity" made in Wal Mart prices will be forced to also go much higher, setting off screams about wage hikes in the US, which in turn will force either US companies to see margins drop even more, or the Fed to assume that it has to offset the resulting equity weakness with more money printing. In other words, bad news all around.
Shanghai plans to raise minimum wage by more than 10 percent this year, the mayor of China's most populous city said on Friday.
"We have to raise minimum wage this year. The final adjustment will be well above 10 percent," the city's Mayor Han Zheng told a news conference.
Local media reported on Thursday China's Guangdong province will raise its minimum wage by an average 18.6 percent from March, in a sign that Chinese labour costs may rise strongly again in 2011.
Bernanke: 100% confident, etc.