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ChartBrief #55 - Inflation and Monetary Policy in China

February 14, 2017

China reported its January inflation numbers: CPI 2.5% y/y vs 2.4% expected, 2.1% previous, and PPI 6.9% y/y vs 6.6% consensus, 5.5% in December. Looking at the trends in the charts the latest round of data confirm the inflationary revival. For China the issue of deflation has passed, and it's now about inflation. Property prices are rebounding and in some cases looking frothy, and commodity prices (in part fueled by China's fiscal stimulus) are contributing to a big turnaround in producer prices. In the past whenever you see producer and property price inflation pickup it is usually a harbinger of monetary policy tightening, and my view is that this time is no different. I will be exploring this issue and investment implications in more detail in this week's edition of the Weekly Macro Themes.

 

All measures of consumer price inflation are picking up, including core CPI.

 

Rising producer and property price inflation normally prompt monetary policy tightening.

 

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