Of the many factors contributing to slow growth in the Chinese consumer price inflation statistic, food prices, stubbornly low commodities and a high value in the Yuan were the main culprits. October’s CPI report for the country showed inflation growth at an annualized pace of 1.30%, down from 1.60% last month and under expectations of 1.50% in a revelation illustrating that China’s economy faces the same hurdles as many of its global peers. Some of the key pieces of data that outline the issue are posted growth in month-over-month food prices, which sat at 1.90% in contrast to September’s 2.70%, and non-food and consumer goods inflation which grew only 0.90% and 1.00%, respectively. Producer metrics take the cake however, with prices printing at -5.90% monthly and marking the 44th straight month of contraction in the figure. Although global growth is still in positive territory, if China is supposed to be the backbone of that growth, market participants should be concerned.
The results of this report and of a similar one released concurrently concerning the poor trade surplus all point towards an economy that cannot dig its way out from the ditch. Numerous attempts to spur lending and borrowing in the form of six consecutive interest rate cuts have done little to aid China, whose Central Bank must now consider further easing measures in the shadow of a pending rate hike from the United States FOMC. Slashing reserve ratio requirements have seen lending metrics spike, but nonperforming loans continue to rise which could impair the system down the road after unprecedented credit creation. Any expansion to easing efforts will be born into a post-rate hike world where conditions will no doubt be more difficult and less effective, increasing the expectation that despite the size and importance of China’s economy, it still has substantial room to slide lower.
Headwinds Facing the Chinese
Andamento del mercato - 10/11/2015