The Inflation Of China’s Condition

One day after the China’s government reported disappointing but consistent trade figures, that country’s National Bureau of Statistics published inflation estimates that are being branded at least on this side of the Pacific as some degree of “hot.” As is usually the case, the characterization is wildly off. China is no closer now to an inflation problem, thus solid growth than anywhere else in the world today no matter how many times a mainstream story uses the words “strong” and “robust.”

China’s producer prices were surprisingly strong in October, while consumer inflation picked up pace in a sign the economy remains robust, with analysts expecting further price pressure as the government’s crackdown on smog hurts factory output.

Growth, however, has remained strong this year, thanks to a construction boom that has drive up raw materials prices and in part fed inflationary pressures. Analysts say ramped up rules to bring polluting factories to heel will add to the price pressures.

The Producer Price Index is mostly what gets people’s attention. It first turned negative in April 2012 coincident to the global economic slowdown. The PPI remained in subtraction (deflation) for an astonishing 53 straight months, only emerging on the plus side last September.

Having moved positive, China’s PPI now rises consistently at rate of more than 5%, including a 6.9% year-over-year gain in October 2017. It has been 5.5% or better in each of the last eleven months, a record of inflation that seems to be indicative of something like inflationary pressures.

Again, linear interpretations make analysis more difficult than it needs to be. We tend to focus on the plus sign as if it is completely independent from what happened before. To reiterate, producer prices in China declined for just about four and a half years. Toward the end of that period, starting in early 2015, prices declined by more than 4% in fourteen consecutive months, at greater than 5% for six straight during the worst of the global downturn at the end of 2015 and the start of 2016.