China's latest inflation report points to upward pressure on prices around the world

Kevin Frayer/Getty ImagesYes, that way.
  • Chinese CPI rose by 1.9% in the year to June, up from 1.8% in May.
  • Producer prices increased even faster, lifting by 4.7% over the year, the fastest increase in six months.
  • Movements in Chinese producer prices tend to lead those in US import prices and inflationary readings in major nations around the world.

Chinese inflationary pressures picked up in June — a signal that could have implications for the global inflation picture in the not too distant future.

According to China’s National Bureau of Statistics (NBS), consumer price inflation (CPI) rose by 1.9% in the year to June, up from 1.8% in May.

While in line with expectation, and the fastest annual expansion since March, the result was still well below the 3% level targeted by the People’s Bank of China.

The NBS said non-food inflation was largely responsible for the increase over the year, increasing by 2.2%. In contrast, food inflation grew by just 0.3% over the same period.

Thomson ReutersChina PPI (Red) and CPI (White) YY

Suggesting that price pressures may build further in both China and abroad, the NBS said producer price inflation (PPI) grew by 4.7% over the year, an acceleration from the 4.1% increase seen in May.

It was the fastest year-on-year increase in six months, and well off the recent cyclical low of 3.1% struck in the year to March.

While that points to building price pressures in downstream sectors in China, it could also have implications for inflationary pressures abroad.

Chinese PPI has a strong relationship to movements in US import prices, and US import prices tends to act as a lead indicator for CPI pressures in many major nations.

Should that relationship hold firm in the months ahead, it points to building upside risks to global inflationary pressures, and the potential for tighter monetary policy settings from major central banks.

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