China’s Gentle Inflation

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What's going on?

Data out on Friday showed that China’s inflation slowed in August.

What does this mean?

While consumers in the US and Europe have been dealing with dizzying inflation, China’s been sitting pretty with much gentler price increases than those in the West. Sure, the country’s all-important pork prices spiked over 22% last month from the same time last year, and food prices surged 6.1% on the back of that. But locked-down consumers cut back in other areas, meaning August’s consumer prices were up a lower-than-expected 2.5% from the year before, a slowdown on July’s 2.7%. And producer prices – that is, the prices paid by factories and businesses – kept in step: after all, slipping commodity prices mean raw materials are cheaper right now. That might be why August’s producer prices climbed just 2.3% – the slowest rise in a year and a half.

Why should I care?

For markets: Stimulation’s incoming.
China’s economy has admittedly seen better days, and while some of the blame lies with the country’s unshakeable loyalty to its own industry-stalling zero-Covid policies, some does lie with lower demand due to the global economic slowdown. But these figures are actually pretty reassuring: they’ll allow the government to roll out stimulus measures to support growth without having to worry about spiraling prices. That might explain why eager investors sent the country’s CSI 300 stock index up in the wake of the news.

The bigger picture: Let there be light.
China’s already on its way to fixing the issue of power shortages: the country’s reportedly toying with the idea of building more coal-fired power plants than previously planned. That might run counter to its climate goals, mind you, which are already contending with the fact that China opened more coal plants than the rest of the world combined last year.

Originally posted as part of the Finimize daily email.

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