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Inflation causes split opinion

(China Daily)

11:05, September 13, 2011

BEIJING,Spet. 13(Xinhuanet) – A rise in the cost of labor is the main culprit behind the latest round of price hikes, an expert said, adding that wage rises are likely to increase inflation.

In an article published in Shanghai Securities News in late August, Liang Da, an expert with the National Bureau of Statistics, said that wage rises are a "double-edged sword" in that they raise people's purchasing power and expand consumption but also increase production costs.

"If producers raise prices it causes a rise in the producer price index (PPI), worsening inflation," said Liang.

Rapid growth in wages would exacerbate inflation, which could lead to "a spiraling upward trend" in both wages and prices, which should be avoided, wrote Liang.

China's consumer price index (CPI), a major gauge of inflation, rose year-on-year to a 37-month high of 6.5 percent in July, although the CPI growth dropped to 6.2 percent in August, said the National Bureau of Statistics on Sept 9.

Now wages are rapidly rising, said Liang, adding that the minimum wage has been increased in 18 areas since the beginning of the year.

"The highest minimum wage a month was 1,320 yuan ($206), in Shenzhen, South China's Guangdong province, while the highest on an hourly rate was 13 yuan in Beijing," he said.

According to the article, wages in the Pearl River Delta region, the hub for China's manufacturing industry, rose more than 30 percent with pay for ordinary workers averaging nearly 3,000 yuan a month - too much for some enterprises.

Liang said the rapid rise in wages was a result of local governments increasing the minimum wage and a shortage of labor.

"Facing a labor shortage, China-based enterprises have no option but to resort to boosting wages and welfare to attract workers," he wrote.

In the article, Liang said the rise in personal incomes outpaced that of the CPI.

The first half of the year saw a year-on-year increase of 13.2 percent in the per capita disposable income of urban residents. The growth was 7.6 percent with inflation taken into account, according to Liang.

In the first half, the rise in personal incomes, with inflation adjusted, outpaced the rise in the CPI by 2.2 percentage points for urban residents and 8.3 percentage points for rural residents, according to Liang.

However, the rise in personal incomes was offset by the rise in food prices, he added.

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