Not that anyone necessarily expected to see a marked improvement, but the pernicious mix of elevated CPI inflation and falling factory-gate prices persisted in China last month, data out Thursday showed.
Consumer prices rose 4.5% in December, slightly less than the 4.7% economists were expecting, and near the low end of the range (+4.3% to 5%).
PPI deflation remains entrenched, as prices fell 0.5% YoY last month, more than the 0.4% consensus was looking for, but still representing an improvement.
While better at the margins, consumer prices are still rising at the fastest pace since 2012, and falling factory-gate prices underscore lackluster domestic demand. As noted when PPI deflation first reared its ugly head over the summer, it’s a drag on the outlook for global inflation, and works at cross purposes with central banks’ collective efforts to reflate.
We’ll just reiterate the standard color here. Generally speaking, you don’t want soaring consumer prices and PPI deflation, as that combination puts monetary policy in a bind. If you cut rates to alleviate the lackluster demand concerns evident in the PPI numbers, you risk exacerbating the pain for consumers coping with rising prices.
Beijing has, of course, delivered a series of small rate cuts over the past several months in a bid to bolster growth and juice credit creation. Earlier this month, the PBoC cut RRR to ensure ample liquidity headed into the holiday.
In addition to worries that rate cuts could exacerbate inflation, some fret that more monetary stimulus risks irritating Donald Trump, who has made no secret of his disdain for Chinese easing over the course of the trade war.
Core inflation in China has generally behaved. The proximate cause of the sharp rise in consumer prices is obviously pork. Last month, pork prices rose 97% which, believe it or not, is better than November, when the jump was 110%. MoM, pork prices fell 5.6% in December, which perhaps presages relief going forward.
For the full year, producer prices fell 0.3%, China said Thursday. That compares to a 3.5% rise in 2018. For 2019 on the whole, consumer prices rose 2.9%.