China Consumers Mired in Stagflation as Prices Rise, Economy Shrinks

March 13, 2020 Updated: March 16, 2020

Commentary

Chinese consumers have suffered bouts of high inflation tied to hyper-growth. China is grappling with stagflation, similar to what the United States suffered from 1970 to 1981, as its economy continues to decouple from the West and is crippled by the coronavirus pandemic.

Chinese consumers endured horrific short-term swings of monthly inflation of up to 28 percent during the late 1980s and early 1990s. But since 1995, Chinese consumers enjoyed booming average annual wage gains of about 11.7 percent and modest annual consumer inflation that averaged just under 3 percent.

But China’s consumer price index (CPI) jumped to 3.8 percent in October 2019 due to a 15.5 percent spike in food prices. Overall consumer price inflation in February ticked down slightly to 5.2 percent from 5.4 percent in January; but food inflation hit a 12-year high of 21.9 percent, according to Enodo Economics.

Chinese households spend about one-fifth of their disposable income on food, according to the Wall Street Journal. That’s about double the comparable U.S. household share, according to the U.S. Department of Agriculture.

Although a pandemic can quickly interrupt highly concentrated industrial and technology product supply chains, the agriculture sector is less affected.

But China’s Hubei Province, which is the epicenter of the outbreak and its entire 60 million population has been quarantined, produces 30 percent of the nation’s phosphate and compound fertilizers used in agriculture. More importantly, Hubei is the primary supplier to southern China’s “Rice Bowl,” which includes Sichuan, Yunnan, and Guangxi provinces.

Chinese farmers appear to be following the central authorities’ edict to complete their normal plantings, which run from late February through March. But Enodo Economics warns that the lack of fertilizer is expected to severely stunt the size of China’s fall harvest, which could drive agricultural prices even higher.

The Chinese regime has also been aggressively enforcing the 47 articles of the “Price Law of the People’s Republic of China” which was implemented in 1998. Businesses that fail to enforce government-guided prices or engage in price gouging will face penalties, including confiscation of illegal profits, fines up to 5 times the amount of those profits, and being shut down.

China’s State Administration for Market Regulation on Jan. 25 ordered a “crackdown” on violators who had taken advantage of the coronavirus epidemic by engaging in “price collusions, hikes, and frauds.” Within 10 days, the country had dispatched over 1.7 million law enforcement officers and filed more than 3,600 price violation cases, according to Chinese state-media.

The Wall Street Journal reported in early February that when the price of lettuce spiked almost eight times and cabbage jumped five times its normal price at a Carrefour supermarket in Shanghai, the city’s Market Supervision Administration fined the store two million yuan ($286,000) and ordered it to lower its vegetable prices. Several Chinese domestic grocery stores were also fined for similar “price gouging.”

Stagflation hammered U.S. consumers from 1970 to 1981 with periods of negative GDP growth, double-digit inflation, and almost double-digit unemployment.

With little hope for a near-term economic turnaround and food prices expected to increase, China’s continuing stagflation will hurt consumers and undermine the Chinese communist regime’s reputation.

Chriss Street is an expert in macroeconomics, technology, and national security. He has served as CEO of several companies and is an active writer with more than 1,500 publications. He also regularly provides strategy lectures to graduate students at top Southern California universities.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.