Thursday, September 8, 2011

China CPI Finally Cools

Chin'a inflation eased to 6.2% in August from July's three-year high thus allowing China to stop tightening monetary policies. More importantly is that inflation only increased .3% sequentially showing only a 3.6% annualized rate.

Part of what investors have missed in this whole inflation scare is that the huge year over year increases are due to the yo-yo pricing caused by the 2008 financial crisis. Are oil prices higher now? Are corn or wheat soaring above the highs seen back then?

Unfortunately though these commodity prices are significantly above the 2009 and 2010 lows. Are current gasoline prices in the US inflationary? They are relatively equal to the 2008 peaks so how could it be inflationary when flat for over 3 years?

Now inflation has a lot more to do with just pure commodity prices especially in the US. In emerging markets though food prices can have a dramatic impact. One has to wonder if the US would quit burning its corn if food inflation wouldn't plunge. Seems so simple, but naturally the president is busy working on tax credits instead of solving the worlds problems.

Anyway, year over year inflation will moderate as most commodities peaked back in February. For example, copper has been mostly over $4/lb since back in November and peaked over $4.6/lb in February. So while copper factored into massive inflation when looking at YoY or MoM results as the year began, it has been flat to down all year reducing the inflation pressure. As the calendar moves into October and November, prices will be flat to down for this commodity and most of them in general.

In this theory pricing pressure should moderate unless the world pushes forward with growth and copper hits $5 or $6/lb as I estimate the next run will hit. One should understand that should a run would be normal for strong global growth. This pause in the market over the last 5+ months has helped the inflationary period long term.

Via CNBC:


  • China's inflation eased slightly to 6.2 percent in August from July's three-year high, raising expectations that the central bank will hold off on further policy tightening amid worries about a global economic slowdown.
  • The figure was in line with market forecasts of 6.2 percent, and compares with 6.5 percent in July.
  • "Consumer inflation has obviously peaked. Inflation is no longer a big problem now as we are seeing very bad industrial fundamentals and weakening external demand as shown in the PMI data," said Dong Xian'an, an economist at Peking First Advisory in Beijing.
  • The consumer price index rose 0.3 percent in August from the previous month, after a 0.5 percent rise in July. The figure is not seasonally adjusted.
  • Giving a more detailed breakdown of the index, the bureau said food prices rose 13.4 percent in the year to August, with non-food prices up 3.0 percent.
  • The producer price index rose 7.3 percent in the year to August and was up 0.1 from July.


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