You may see a headline or two touting the liveliest read on Chinese consumer price growth since last summer.
To the extent any such headlines suggest a light at the end of the deflationary tunnel for Xi Jinping, you shouldn’t believe them.
Fortunately, no one — not even Xi’s beholden bureaucrats — will suggest CPI data covering January was anything more than a reflection of holiday spending in China. The figures, released on Sunday, showed the headline price gauge rose 0.5% YoY last month, as locals dialed up outlays ahead of Lunar New Year festivities.
Underlying price growth ran an even quicker 0.6%, the fastest YoY pace since June. Services inflation was particularly brisk, or brisk for China anyway, at 0.9%.
Note from the figure that factory gate deflation was unabated. Wholesale prices dropped 2.3% in January, marking a — checks notes — 28th consecutive month of PPI deflation. That’s pretty “impressive.”
I won’t dwell on this, but it merited mention. China’s battle to avoid crossing the deflation event horizon is in many respects the most important macro story of them all, and the country’s economic woes could compound in a trade war, given that exports are pretty much the only good thing Xi has going.
The inflation bump from Lunar New Year spending will fade immediately, and were it not for that fillip, it’s quite likely that consumer price growth would’ve been negligible last month. Recall that the implicit deflator spent the last seven quarters in negative territory. In the event it’s negative for the full-year 2025, that’d mark three straight years, an unprecedented stretch.
The figure above’s from SocGen’s Albert Edwards, who made a career out of documenting deflation dynamics.
“Investors should keep a very close eye on [China’s] GDP deflator, which seems stuck firmly below zero,” Edwards wrote late last month. “For a debt-heavy economy, price deflation is a disaster.”
At what point do the Chinese people rise up against, or resist, Xi?
It’ll probably be about the same time MAGA supporters rise up against Trump 🙂
So, not that long from now?
I have read that, historically, foreign trade resulted in a 29% increase in buying power of middle class Americans. Unfortunately, the groups that lost jobs suffered a 20% loss in their economic situation.
What is probably needed, is job training for those harmed, not tariffs. If MAGAs financial situation doesn’t improve in 4 years, they won’t support his politics beyond this term (imho).
I wish I could be more optimistic, but I think old age is the only thing standing between Xi, Trump, and Putin and the undying power over their constituencies. I don’t believe Trump will be president for life, but I don’t foresee his followers abandoning him ever at this point.
The sad part about the folks who lost their job is they keep hanging onto this idea that oil and gas would create plentiful jobs if it weren’t for them meddling liberals when green energy is and could be an even greater opportunity for them. Trump is going to end up costing a lot of jobs and preventing immigration, legal or otherwise isn’t going to help them.
Maybe everyone can learn to code!
I liked the dragon being sucked down into a black hole. It added a nice physics flourish to the article.