Koda Ltd (KODA). Executive Director Ernie Koh has a message for clients in 50 countries who complain about the Singapore-based furniture maker’s first price increase in two years: Take it or leave it.

Koda’s factories in China, Malaysia and Vietnam are battling rising costs as governments in Asia increase minimum wages to curb discontent over a widening wealth gap. While weak global growth and increased competition limited the ability of producers to raise prices during the past five years, Koh says they can’t go on absorbing the additional expenses. — Bloomberg

Mexico’s surprise interest rate cut shows policymakers are worried that the peso could overheat in coming years, despite their hands-off attitude toward the currency in public.

The Banco de Mexico cut interest rates by 50 basis points despite rising inflation, a move that goes against orthodox arguments that lower interest rates can fan price pressures.

The central bank is staking its credibility that inflation in Latin America’s second-largest economy has been tamed and will reach the bank’s 3 percent target in the longer term, betting it can cut without putting pressure on prices…

Bracing for a flood of yield-seeking capital, emerging markets such as Turkey, Poland, Hungary and India have all cut rates in recent months in moves at least partly aimed at fending off speculative inflows, and Banco de Mexico fears more to come.

— Reuters

World food prices rose in September to the highest in six months as dairy and meat producers passed on higher feed costs to consumers, the United Nations’ Food & Agriculture Organization said.

An index of 55 food items tracked by the FAO rose to 215.8 points from a restated 212.8 points in August, the Rome-based agency reported on its website today. Dairy costs jumped the most in more than two years.

Livestock breeders and dairy farmers are passing on the higher cost of feed, after grain prices jumped in June and July, according to Abdolreza Abbassian, an economist at the FAO in the Italian capital. Higher prices don’t mean a food crisis is imminent, he said today by phone.

“Despite a very difficult market, the fundamentals that suggest a food crisis are just not there,” Abbassian said. “Market sentiment is now accepting high prices more as a rule than as an exception.” — Bloomberg

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Sure it’s not a food crisis, for those who can afford higher prices.  

Governments’ dependence on debt monetization (central bank printing) as a tool to fight general weak economic growth will also act as a long-term tailwind for commodities (particularly food-based).    

For the sixth quarter in a row, the apartment industry improved across all indexes in the National Multi Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions. The survey’s indexes measuring Market Tightness (76), Sales Volume (54), Equity Financing (58) and Debt Financing (77) all measured at 50 or higher, indicating growth from the previous quarter — NMHC 

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This will be a tailwind for core-CPI.  It may fall slower than analysts would like.  

Interesting view of the deep roots of inflation in China’s economy.  If officials were to lift the ban on residency status in China, a flood of people would come to buy, but prices could plunge given the low incomes of the working class.  I think there is too small a middle class in China to provide oncoming support if prices decline.  

I’m going to keep an eye on developments on this front. 

The wind-tower case highlights growing tension between the U.S. and China on economic and renewable-energy issues ahead of the U.S. elections in November. The Commerce Department on May 17 announced tariffs of 31 percent to 250 percent on Chinese solar-product imports, after companies including the U.S. unit of SolarWorld AG (SWV) said the products were sold below production cost. China on May 25 said it filed a complaint against U.S. anti-subsidy duties with the World Trade Organization in Geneva. — Bloomberg

(-) Korean Washer Exporters To Pay U.S. Duties As High As 71%

The U.S. Commerce Department proposed duties of as much as 71 percent on large, residential washing machines made in South Korea, concluding that government subsidies for the goods undercut U.S. producers. — Bloomberg

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Surreptitiously, protectionism is increasing. 

A decision to close an optical components factory in Shenzhen triggered a nine-day walkout in March by more than 1,000 workers. Officially, employees at the Oclaro (Shenzhen) Technology Co. Ltd. plant staged the strike to protest possible severance pay problems after the shutdown, which the company said would be completed by 2015.

But on a deeper plane, the strike reflected gnawing frustrations in Shenzhen over the rapid disappearance of local manufacturing jobs. Companies are leaving the city — home to China’s oldest economic development zone — as labor and property costs rise.

Moreover, the Shenzhen municipal government has been encouraging factory closures in certain sectors, while promoting more high-tech manufacturing and the service sector.

China may loosen monetary policy and initiate stimulus in the near-term, leading to a rebound in the second half of the year.  That’s the bullish side.  

While we may see some stimulus measures implemented, the reality is that officials don’t have much wiggle room, especially when you have structural inflation.  

As I said here, while stimulus measures will be implemented, their scope will be a fraction of what the China bulls expect.

On a slightly different note, I thought this was interesting as it confirms my view of a manufacturing renaissance in the U.S. (and worldwide according to the article) over the longer-term as China transforms from a manufacturing to consumer-based economy.

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The future of the global economy lies in China.  The country is in the slow process of preparing for a period of sustainable expansion.  If we were faced with a negative market environment in the coming quarters, I’m sure one could find diamonds and diamonds in the rough in regards to US manufacturing and transportation companies.  Watch out for protectionism though! I believe that China’s stock market has bottomed and it is currently in the retesting phase.

Longer-term though, (U.S. manufacturing) company cash levels are very high, and emerging markets may provide the secular growth that is needed for the (manufacturing) sector to stage a renaissance in the years ahead.  While I don’t believe this scenario is knocking at our door, it’s progressively getting closer.

—-(RCS Investments Macro Outlook Mid-2011 — June 16, 2011)

I’m skeptical on the scope of help that officials can provide China’s economy given its structural inflation problem; however, with an oversold market, this news may cause a relief rally.  

Investor’s are becoming more convinced that China’s growth will accelerate over the second half of the year.  I’m not so sure.  

Europe remains in the “Macro driver’s seat.”