China Inflation Pressures Slow As Commodity Crunch Eases

Thanks to various measures by the government to increase supplies of commodities (and simultaneously crack down on speculation), Chinese inflation pressures eased significantly in December.

Chinese producer prices rose 10.3% YoY, slowing dramatically from November’s 12.9% and well below economists’ forecasts of a 11.3% gain.
Chinese consumer prices increased just 1.5% YoY, down from 2.3% in November and also lower than an expected 1.7% gain.

The drop in PPI largely reflects a dramatic easing of commodity price pressures

And as PPI compresses relative to CPI, margin pressures may ease modestly…

And push Industrial Profits down even further…

Notably, food prices fell in December, with pork prices dropping almost 37% and vegetable price gains slowing.

However, this easing of inflationary pressures may itself be transitory as China’s “ZeroCOVID” policy means strict mobility restrictions are widened to contain the spread of the highly transmissible omicron variant, temporarily driving prices up due to supply-side pressures, compounded by the upcoming Lunar New Year holidays will also see a surge in demand for staple foods and thus higher prices.

Additionally, the drop in inflation may offer Beijing more confidence in unleashing a more broad-based stimulus to bail out its property developers (or more likely the actual homeowners).

Tyler Durden Tue, 01/11/2022 – 21:01