In December, China’s consumer price inflation was up sharply to 1.9% year-on-year. The government is rumoured to be looking at a 3% target for inflation this year when Wen Jiabao sets the figure at next month’s National People’s Congress meeting (last year’s target, by the way, was 4%, but prices actually dipped 0.7%). The OECD reckons that consumer price inflation in China will hit just 1.8% this year.
But out on the streets, it quickly becomes clear that prices are rising much more quickly, and some economists reckon that inflation of over 10% is possible.
Over the weekend, the government responded to the problems by promising a rise in minimum wages in Shanghai and Beijing. Zhejiang and Jiangsu provinces are also set to raise their minimum wage and Sichuan and Guangdong are also considering what to do.
Before April 1, Beijing will raise its minimum wage by 10% to 880 rmb a month. Shanghai is raising its wage by 12% while Jiangsu and Zhejiang are aiming to match Shanghai.
Rising the wages helps ease people’s concerns about inflations, of course, especially for China’s poorest workers, the ones who most need the help. However, wage inflation will eventually trickle down to consumer price inflation anyway, pushing up prices. And it’s worth noticing the size of the minimum wage increase. If the government is so sure that inflation is going to be modest this year, why bump up wages so significantly?