Chinese Numbers Show Low Inflation

Alan Penny

9 January 2020

3 min read

Yuan down

  • CPI year-over-year misses the mark
  • PPI year-over-year worse than expected

Early on Thursday, the Chinese released a couple of inflation figures that will certainly be catching the eye of traders around the world.

The inflationary figures out of the Chinese mainland are interesting due to the fact that China is rapidly becoming one of the most important economies in the world for global growth. Beyond that, the Chinese are starting to become major consumers as well as producers, inflation is becoming ever more important as time goes on.

Consumer Price Index lower than anticipated

The initial figure to come out was the Consumer Price Index year-over-year. The reading was 4.5%, lower than the 4.7% anticipated by the market. That being said, the number is something other economies would struggle to bring.

perhaps the market isn’t humming along as strongly as people had anticipated

That reading is likely to continue to cause issues and work against the value of the CNY. Furthermore, it shows that perhaps the market isn’t humming along as strongly as people had anticipated.

The next number was the Producers Price Index year-over-year. It came out at -0.5%, as opposed to the -0.4% that was expected. Still, this shows that production is still relatively slow in China, but one would have to assume that the figures were somewhat skewed by the trade war.

Ultimately, the market is likely to skip past that and pay more attention to the US-China trade situation. It does appear that the Americans and the Chinese are going to sign a “phase 1 deal” on January 15. As long as that’s the case, these numbers will probably be overlooked. However, traders will do so at their own peril.

Pay attention to Chinese inflation

Going forward, traders would be wise to pay attention to the Chinese inflationary figures, because these give an idea of the demand by the Chinese public. Additionally, the PPI figures are indicators of what is going on with global trade, which has certainly been taking it on the chin as lately.

Chinese numbers are a bit of an anomaly though because they are highly manipulated. But they also give us an indication of the general direction of the market.

Looking at this set of figures, one can get an idea of how the overall global trade situation, and the “risk appetite” in general, are going to be. This can translate into whether or not safety assets should be bought, or if emerging markets can be bought into, such as China. Most Western traders approach emerging markets through ETF markets, but this can also have a knock-on effect for those trading Asian equities.

As China goes, so goes the rest of Asia, and therefore various stock markets. While the numbers were less than impressive, one would have to assume they should trend higher from here, now that the Americans and the Chinese are coming to terms. If they do not, then obviously something much more ominous is going on.

Written By
Alan Penny

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