Checked with our China economist, it appears that China’s export price has been rising since early 06. Compared to the price by end of 06, export prices are already 7.4% higher (See charts attached)-an interoffice email

2007-12-11 China Export Input Prices2007-12-11 China Export Prices vs Term of Trade

While headlines focus on China’s internal inflation issues, more relevant to the fed are China’s export prices, which become our import prices.

And it is not wrong to view import prices as functionally equivalent to unit labor costs, due to outsourcing of labor investment inputs.

And a weaker $ vs Yuan will add to our ‘import inflation’.

Fed hawks know this and probably sense a ripping inflation in the pipeline.

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