One of the key themes for 2012 is going to be Chinese economic growth, and whether the country can avoid a so-called economic hard-landing. Carl Weinberg, chief economist at High Frequency Economics, believes it can – and much of his optimism revolves around a slowdown in food price increases.
“Other than prices for a few individual products – beef, kidney beans and cucumbers – the slowdown is startling,” he said in a note. “Prices for core foodstuffs – rice, chicken, pork, fish, duck and most vegetables and fruits – have slowed dramatically.
He estimates that China’s consumer price index for December will show that food price increases will have slowed to a 7.7 per cent year-over-year pace. That’s down from a high of 14.8 per cent, year-over-year, in July. This is very good news for consumers because they can rarely adjust the amount of food they buy; rising prices that are not matched by wage increases really sting and mean that there is less money spent on other retail items. In China, consumer spending accounts for about 40 per cent of the country’s gross domestic product growth.
Sure, wages are also rising in China, on average. But Mr. Weinberg noted that this is because of the migration of workers from farms to cities. “Other than families in transition from employment in the rural sector to the modernized sector, income growth per household is really very modest,” he said.
But back to the economic boost from a slowdown in food prices: Get ready for the return of double-digit economic growth, and without the help of authorities.
“Slower food price increases will generate more economic stimulus than any government program or monetary policy change ever could,” Mr. Weinberg said. “No policy stimulus will be needed in 2012 to return the economy to 10-per-cent-plus GDP growth, next export risks notwithstanding.”