[Vnbiz] Asian Inflation Begins to Sting U.S. Shoppers

[Tai Phan]

Asian Inflation Begins to Sting U.S. Shoppers
By KEITH BRADSHER<http://topics.nytimes.com/top/reference/timestopics/people/b/keith_bradsher/index.html?inline=nyt-per>
Published: April 8, 2008

BAT TRANG, Vietnam<http://topics.nytimes.com/top/news/international/countriesandterritories/vietnam/index.html?inline=nyt-geo>—
The free ride for American consumers is ending. For two generations,
Americans have imported goods produced ever more cheaply from a succession
of low-wage countries — first Japan and Korea, then China, and now
increasingly places like Vietnam and India.


But mounting inflation in the developing world, especially Asia, is
threatening that arrangement, and not just in China, where rising energy and
labor costs have already made exports to the United States more expensive,
but in the lower-cost alternatives to China, too.

"Inflation is the major threat to Asian countries," said Jong-Wha Lee, the
head of the Asian Development Bank's office of regional economic
integration.

It is also a threat to Western consumers because Asian exporters, even in
very poor countries, are passing their rising costs on to customers.

Developing countries have had bouts of inflation before. Indeed, some are
famous for them, like Brazil, which experienced triple-digit inflation in
the late 1980s and early 1990s. But two things make this time different, and
together promise to send prices higher at
Wal-Mart<http://topics.nytimes.com/top/news/business/companies/wal_mart_stores_inc/index.html?inline=nyt-org>and
supermarkets alike in the United States, just as the possibility of
recession looms.

First, developing countries now produce nearly half of all American imports.
Second, inflation in these countries is coming at the same time that many of
their currencies are rising against the dollar.

That puts American consumers in a double bind, paying at least some of
producers' higher costs for making their goods, and higher prices on top of
that because the dollar buys less in those countries.

Asian businessmen say they do not have a choice about charging more. "This
is a tough time to do business," said Le Hoai Vu, the sales manager for the
Quang Vinh Ceramic Company here in northern Vietnam.

The company just increased by up to 10 percent the prices it charges Pier 1
Imports<http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=PIR>in
the United States for hand-painted vases because labor costs are
rising
30 percent a year.

Over all, in Vietnam, one of the fastest-growing destinations for
manufacturing investments and one of the fastest-growing sources of American
imports, prices rose 19.4 percent from March 2007 to March 2008.

In China, Foshan Shunde Augustus Bathroom Equipment Ltd. in Foshan City is
about to raise prices by 10 percent for a range of bathroom fixtures
exported to North America.

"Rising inflation is a way of life in China these days, you see it
everywhere," said Faye Kong, the company's international business
supervisor.

The cost of American imports from less industrialized countries as a group
is rising. A Bureau of Labor
Statistics<http://topics.nytimes.com/top/reference/timestopics/organizations/b/bureau_of_labor_statistics/index.html?inline=nyt-org>index
of average prices for imports of manufactured goods from such
countries fell gradually through early 2004, but is now rising briskly and
was up 5.6 percent in February from the same month last year.

That contributes to rising inflation in the United States; in the 12 months
through February 2008, the prices of goods for sale in the United States
increased by 4 percent, according to the government's Consumer Price Index.

But so far, Asian exporters have passed along only a portion of their costs.
In China, for instance, prices are now rising almost 9 percent a year,
triple the pace of a year ago.

Workers in the developing world facing higher prices have been increasingly
vocal in demanding higher wages, with protests erupting in recent days in
Vietnam, Cambodia and Egypt.

At the same time, inflation keeps rising: the Philippines announced that its
inflation at the consumer level had doubled in the last five months, showing
a 6.4 percent increase in March over the same month a year ago. And weekly
inflation at the wholesale level has accelerated in India, reaching an
annual rate of 7 percent in the week ended March 22, up from 3.1 percent as
recently as last October.

Not long ago, it would have been unlikely for a poor country with high
inflation to see its money strengthen in value against the mighty dollar.
But the dollar is not quite as mighty as it once was. Large American trade
deficits and other problems have weakened its appeal.

And there are signs that the dollar could fall further if developing
countries' central banks stopped supporting it, particularly in Asia.

Vietnam's central bank even had to order the country's commercial banks late
last month to resume buying dollars within the tight range of exchange rates
set by the government. Many banks had started betting on dollar depreciation
and refusing to accept large sums in dollars, to the point that
multinationals and exporters had trouble wiring money into the country to
pay their employees' salaries.
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