SEAN DARBY: China Needs To Worry About Deflation

jefferies sean darbySean Darby

Photo: Bloomberg

Sean Darby, Jefferies’ Chief Global Equity Strategist, stated that China is “focusing on the wrong inflation numbers.“In an interview with CNBC, Darby believes that the producer prices are pointing to a deflationary environment, and feels that the worry needs to be more focused on deflation rather than inflation.

Producer prices in the world’s most populous nation fell 0.7 per cent in April from a year earlier, after dipping 0.3 per cent in March and staying flat in February, and are on track to be “deflationary” on an annualized basis, Darby wrote in a report this week. He argues that producer prices, rather than consumer prices, are a better indicator of what’s happening in the real economy.

Inflation is now under the central bank’s target of 4% for the year, and the PPI numbers among other economic indicators point to a weaker picture rather than a stronger one.

“I think perhaps policy makers are now comfortable with the CPI and I really doubt that that’s the only tool they are using to gauge the economy,” Darby said. “The fact is there is still weakness in corporate profits and we may be looking at a hard landing in corporate profits rather than a soft landing in the economy.

While inflation is the common theme in regards to China, it seems as though the concern at least somewhat misplaced.

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