NEW YORK: For years, low prices on China-sourced goods helped dampen inflation in the United States. Now China's efforts to boost domestic consumer spending, reducing reliance on exports, are leading to higher costs for multinationals that manufacture goods there.
Eventually, China could export its inflation. Conglomerates ranging from Emerson Electric to Honeywell International feel pressure on margins from double-digit wage increases in China. So have toymaker Mattel, fast-food chain Yum! Brands and computer maker Dell, analysts and investors say.
They have plenty of options besides raising prices, such as embracing automation or moving to China's less-developed interior. Some companies relegate China costs to the category of minor headache; others point to long-term benefits from richer Chinese consumers. But the topic has became a talking point during the earnings season now winding down.
"Input cost increases have been a steady headwind to margins for some time now," Fairchild Semiconductor International Chief Financial Officer Mark Frey said last month. "Metals and energy pricing, forex and China wage inflation are more difficult to forecast."
Yum, the No. 1 Western restaurant brand in the world's fastest-growing major economy, generates a third of its profit from China. It said its full-year margins will dip this year, citing labor inflation in the mid-to-high teens.
"I do believe that labor inflation will continue high for quite a while," Yum CFO Rick Carucci said on the company's earnings conference call. He called commodity prices another "wild card" for the company.
Eventually, China could export its inflation. Conglomerates ranging from Emerson Electric to Honeywell International feel pressure on margins from double-digit wage increases in China. So have toymaker Mattel, fast-food chain Yum! Brands and computer maker Dell, analysts and investors say.
They have plenty of options besides raising prices, such as embracing automation or moving to China's less-developed interior. Some companies relegate China costs to the category of minor headache; others point to long-term benefits from richer Chinese consumers. But the topic has became a talking point during the earnings season now winding down.
"Input cost increases have been a steady headwind to margins for some time now," Fairchild Semiconductor International Chief Financial Officer Mark Frey said last month. "Metals and energy pricing, forex and China wage inflation are more difficult to forecast."
Yum, the No. 1 Western restaurant brand in the world's fastest-growing major economy, generates a third of its profit from China. It said its full-year margins will dip this year, citing labor inflation in the mid-to-high teens.
"I do believe that labor inflation will continue high for quite a while," Yum CFO Rick Carucci said on the company's earnings conference call. He called commodity prices another "wild card" for the company.
