Would You Believe…A Chinese-Led Reflation?

Consider the following tidbit that came in via a morning research compilation. I include it as sent, complete with misspellings and abbreviations.

Chinese 1Q urban employees salaries up 14.6% y/y, avg salary up 13.2% y/y

I do not know from whence the data came, nor do I know whether the 14.6% year-over-year increase in urban Chinese labor costs was “worse than expected” or “better than expected” or “in-line” with economist’s expectations.

But I do know that the “Chinese labor arbitrage” of which the bond bulls speak so approvingly continues apace…and while it is having a salutary effect on Wal-Mart’s cost of goods sold and Alan Greenspan’s CPI number, it is likewise having an inflationary effect on the Chinese labor market that would make a Peruvian Central Banker resign from his post, dig out the gold bullion from beneath his wine cellar and set sail for Bimini.

Only recently, fears of “a Chinese-led slowdown” caused Doomsday-Economist Steve Roach to jump to defect to the Bill Gross-led, Chinese-Labor-Arbitrage-Is-Deflationary side of the bond market food fight, about 50 basis points ago on the two-year treasury note (see “Even Armageddonists Need An Office” from June).

Yet today we read that the average Chinese urban salary—think about this for a minute—rose 14.6% in the first quarter.

I’m no math whiz, but I do know that 14.6% rounds up to 15%…and 15% a year doubles every five years.

In the words of Maxwell Smart, Agent 86 of CONTROL (why that show isn’t on cable TV somewhere in this great country of ours 24 hours a day is beyond me): “Would you believe, a Chinese-led reflation?”

Jeff Matthews I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.