Chinese Inflation Still Accelerating

Inflation was set to rise because of year-over-year comparisons in commodities, but Chinese inflation is still accelerating. The U.S. CPI will jump in January and all of 2017 because oil prices are up 100 percent off January 2016 lows, but this bump looks like a pig in the python for now. The monthly inflation rate won't increase faster unless something changes in the economy. In China, the year-on-year PPI is 5.5 percent in December 2016, but extrapolate 3-month inflation data you get a figure in the high teens. The one-month annualized figure is more than 20 percent.

Bloomberg: China Factory Prices Rising Fastest in 5 Years Adds to Reflation
Only four months out of a multi-year factory deflation, the world’s second-largest economy is poised to export inflation around the globe through its supply chains as manufacturers squeezed by higher input costs raise asking prices. Whether that rebound will be sustained hinges on how the global economy fares under a Donald Trump presidency and whether trade tensions flare between the U.S. and China.

Economist Takeaways

"Reflation continues in the factory sector," said Julia Wang, an economist at HSBC Holdings Plc in Hong Kong. "The stable CPI suggests that the reflation is confined mostly in the industrial sector and hasn’t filtered into the real economy. So the PBOC would possibly not respond to it until inflation expands to the real economy."
China can't transmit the prices globally unless others are willing to pay higher prices. If not, the reflation will collapse as it has at every turn since 2011.

Another factor is the yuan. A 5.5 percent depreciation in the yuan sends USDCNY to 7.30. If inflation in China accelerates, will the yuan rebound because investors see Chinese growth picking up, or will Chinese investors dump the yuan even faster to buy real or foreign currency denominated assets?

NBS: 2016年12月份工业生产者出厂价格同比上涨5.5%

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