China’s inflation wallops U.S.

Dallas Morning News: As an inflation hawk, Richard Fisher, the president of the Federal Reserve Bank of Dallas, is a bit worried about the day the Olympic flame is extinguished.

Fisher, a member of the Federal Reserve committee that influences U.S. interest rates, says China is about to face an inflation conundrum that the Olympics temporarily is holding in check. Beijing tamped down worker wages and subsidized energy to make sure the world sees China in the best possible light. But pressures from rising demand in China aren’t abating. So this once low-cost giant is likely to face serious inflation at home, some of which it will ship overseas.

That’s why China matters to Fisher, who has urged his fellow board members to increase interest rates to battle inflation in the United States. And this is why China also matters to U.S. consumers: Chinese-made goods, such as $20 clothing and less-than-$100 electronics, will cost more.

Fed’s problem

China’s inflation mess is now also the Fed’s problem. Wages in China are up 18 percent in the first half of this year and probably will go higher. Wonder why your neighborhood dry cleaner is asking you to reuse wire hangers? Higher manufacturing costs of steel hangers being passed along by Chinese makers to U.S. cleaners.

Although the world’s central bankers have no control over the injection of overseas inflation into the U.S. economy, the implications are clear, says Fisher.

If inflation becomes a built-in expectation of businesses and consumers on top of the subprime mortgage mess and a weakening jobs front, the Fed would have its hands even more full as it combats a dangerous upward spiral of wages and prices.