Inflation Watch

We all know that energy and food are going up. Food is now increasing at an 8% inflation rate. Funny, everyone cheered when WalMart's sales went up 2.4%. But if you put that inflation number into the mix, they seem to actually have sold less.

But I digress. I ran across this bit of information that hasn't been spoken of much as an inflation generator .....

From John Mauldin's e-newsletter (you must do a free subscription to see the link)

But another currency is slowly wending its way up. Take a look at the chart below. The Chinese yuan is up against the dollar from 8.28 to 7.57 to the dollar over the last two years. That is an increase of almost 9%. The movement in the last month has been particularly fast. I wrote over two years ago that the Chinese would slowly allow their currency to appreciate, and would move at their own pace, despite the screams from the US Senate to do it all at once.

In 2-3 years, the yuan will be down another 10-15% from where it is today, and the Chinese will be close to allowing the yuan to float. Should this be a cause for rejoicing in the US? Maybe for a few select companies, but consumers will not be as happy that (as noted above) prices are slated to rise.

Consider all the products that we import from China. By China allowing the currency to eventually float against the dollar, Chinese goods will continue to get more expensive (9% over the last two years with another 10-15% yet to come). Sure, it will make our exports more attractive to China, but just think of the costs of everything you see at a Costco or WalMart increase a minimum of 5%/year simply based on currency changes.