- Financial markets barely budge now when Chinese economic data is released.
- However, it’s worth paying attention to its producer price inflation release.
- It has a strong relationship to movements in US import prices, and US import prices have a strong relationship with consumer price inflation readings in major nations. Inflation plays a major role in determining monetary policy settings.
Nobody seems to care about Chinese economic data anymore.
It’s been years since there’s been a meaningful market reaction, dulled down by persistent concerns about the veracity of government data, super-loose monetary policy settings from major central banks, and diminished concern that the economy is not heading for financial Armageddon.
You name the release — GDP, inflation, PMIs or industrial or construction data — no-one appears to care.
However, perhaps there’s one Chinese data point that you should be watching closely: Chinese producer price inflation, or PPI for short.
Some excellent charts from ANZ Bank help explain.
The first shows the annual change in Chinese PPI overlaid against world export prices and US import prices.
As a major goods exporter, it comes as little surprise that factory gate price movements in China are similar to those seen in global trade prices, including US imports.
The next chart shows the annual change in US import prices against consumer price inflation from G7 nations.
Clearly, there’s a strong relationship.
Given there’s also a solid relationship between US import prices and Chinese PPI, it suggests the latter is a good lead indicator on what’s likely to be seen in inflation readings in major nations around the world.
And, looking ahead, ANZ’s China Commodity Index suggests there’s likely to be a further deceleration in Chinese PPI growth in the months ahead.
So, to recap.
ANZ’s China commodity price proxy is pointing to a deceleration in Chinese PPI over the next two months, and Chinese PPI has been a more than useful lead indicator on consumer price inflation readings in the past.
Given the importance that inflation holds over the outlook for monetary policy settings around the world, itit’s a good incentive to keep an eye on upcoming China PPI releases.
The next figure for May will be released on June 9.
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