Impact of inflation being felt worldwide: WSJ

From  Fazle Rashid

NEW YORK, June 6: Cheap labour from China, India, Eastern Europe and Bangladesh immensely helped the rapid growth of economic development worldwide without the sting of inflation. The situation is reversing. The impact of inflation is being felt worldwide, the Wall Street Journal (WSJ) in a front page story reported today.

The companies in most of the countries with robust economic health are working  at their full capacities. These factories are now facing acute shortages of lands. There have been riots in India and China protesting government decisions to lease out lands to companies evicting thousands of people.

There is no gap in wages earned by Western labourers and the counterparts in China, India and Bangladesh. In some cases, global links of the economy are increasing cost, instead of lowering them as far flung businesses are competing for the same resources, the WSJ said. The thinning of production capacity has become a source of headaches for the central banks. The central banks in their bids to stave off inflation may be left with no alternative but to raise their rates.

The US Federal Reserve chairman Ben Bernanke addressing a bankers meeting in South Africa said the rising Chinese domestic costs could eventually feed through to the US imports but would have modest effect. He, however, maintained that the risk of moderating inflation remained to the upside in the US because demand is high relative to capacity.

Jean-ClaudeTrichet, President of European Central Bank sounded a stark warning saying that the industries in Europe have very little chance of increasing their production capacities and asked workers to exercise restraint in demanding wage hike. The Bank will announce new rates today. Bank of England has already raised interest rates.

Exports from China is becoming expensive. The Chinese workers have received a wage hike by 21 per cent. Indian outsourcing giant Infosys Technologies raised entry level wages by 10 per cent. Further increase is not ruled out because of the stiff competition among companies for skilled labourers. Globalization is still helping contain price pressures and the growth is still strong. Inflation remains moderate at around 2.0 per cent in industrialised countries and not above 5.0 per cent in developing countries.

Cheap imports have benefited consumers in the US and subtracted one percentage point a year from inflation in America for the past decade, IMF said. Global crosscurrents from China and other fast growing economies are raising some costs in the developed world. The US farmers, for example, are paying more to export grain because large ships they use are busy serving booming Chinese economy. The cost of shipping has risen to $50,000 a day from $17,000 last year.

The Chinese economy is set o grow by 10 per cent  for the fifth straight year. Employers are aiming to expand their work force by an average 13 per cent. The growth is empowering the

workers.