Inflation and tomorrow’s costs

When I stopped for something cold to drink yesterday, I saw a little boy about 7 or 8 at the same roadside shop. He was a scrawny looking kid and had a 1 kuai (1 RMB) bill stuffed tightly inside his little fist. As with most children I see in China these days, he was wearing glasses two sizes too large, but still eagerly peered through them to examine the collection of available popsicles. He darted indecisively between the two freezers before finally picking up a popsicle and summoning enough courage to ask the shop keeper “How much is this?” “1.50” said the shopkeeper. The process repeated for five more popsicles and I was surprised to hear that his voice remained calm. When he finally found one for 1 kuai, he cheerfully handed over the bill and went on his merry way.

There’s a vegetable booth at the entrance of the xiaoqu (residential area) where I live. I remember the old lady in charge one day remarked how almost all popsicles had risen in price in the past year or so. The conversation is clear in my memory because I was trying desperately to find the little half kuai notes and coins which I was sure I had. Even as prices increase, why are these small coins, including 1, 2 and 5 fen (cent) ones, still in circulation?

Even though recent the inflation rate has been below target, it was at a high of 6.5% last year. Keep in mind China’s 4% target rate compared to the 2% of many Western countries, including Canada. Food prices have been volatile and higher prices more often than not impact the poorest segments of society the most because they have no choice about whether or not to eat! For a person making a medium minimum wage1 of 1250 kuai per month in Beijing, a 1 or 2 kuai increase in the price of each meal translates into an extra 7% or 14% of their income spent on food. To a person who regularly fills up on 400 kuai tanks of gas, or someone who spends 5000 kuai of company money on a dinner for six, it may not seem like much, but inflation can take its toll on those most vulnerable and I suspect it already has.

1 China has no national minimum wage and instead, each province (or province level city) sets their own minimum wage. According to Haver Analytics’ latest 2012 data, the highest minimum wage is in Guangdong at 1,500 kuai per month while the lowest minimum wage is little more than half that in Gansu at 760 kuai per month.