The latest inflation data from China has been brought into question over the revisions made to the way food factors into the CPI.
But, actually, if China had stuck to the old weights, CPI would have been lower than the 4.9% reported, according to Societe Generale’s Wei Yao.
He writes (emphasis ours):
Surprisingly, our own calculation suggests that January CPI would actually have be slightly LOWER using the OLD weights, just as the government claimed. It was because that the drag due to the drop in food weight was more than compensated by the rise in non-food inflation. Non-food inflation would have be 2.3% yoy, compared to the announced 2.6%. Also the changes in weights only affected the headline CPI since 2010 very marginally. Hence, the CPI was below expectations regardless of the choice of weights.
Anf if you look at this chart, that makes a lot of sense. China’s adjustment actually did them a slight disservice this month, whether or not that trend prevails in the long-run is unknown. But the changes really didn’t impact the CPI number much at all this month.
Photo: Societe Generale