Originally published by AxiTrader
Key Takeaway
Chinese inflation data released yesterday showed that both consumer and producers prices accelerated more in the month of January than forecasters had expected. That took the Year on year rates for both price series to the highest level in years. In the case of consumer prices the 2.5% print was the highest level since 2014 while the 6.9% increase in producer prices was the fastest acceleration since 2011.
While it would be easy to blame the base effect this is a clear sign price pressure, and likely also demand, is picking up in China. Crucially the relationship between China and the developed world suggests China is exporting inflation across the globe.
What You Need To Know
Following on from last week's solid trade data for January the release yesterday of Chinese inflation data continued the recent trend of data beats. Both consumer and producer prices easily beat expectations with prints of 2.5% and 6.9% (YoY) respectively.
Naturally there is a strong base effect in this data as the price of energy has risen. But food also accelerated. And the overall big turn around in PPI, which bottomed out at -5.9% YoY toward the end of 2015 before the upward march of prices across 2016 began, and CPI which was only just above 1% last August signals the return of inflation in China.
Unsurprisingly that also means that inflation is back across the globe with Chinese CPI rises clearly also leading US and German CPI higher. Closer to home Australia, which only releases official inflation data quarterly not monthly as the other jurisdictions do, also looks to have consumer prices with a similar bias if the existing relationship with Chinese CPI holds.
Whether it's Chinese inflation, or data globally over the past few months, there is a clear signal that global growth has lifted and the world economy is reflating. You can see it in the latest update of the Citibank G10 and Emerging Markets economic surprise index.
Clearly there is a risk here. That's because of the way these indexes work it begs the question of whether data can continue to beat expectations, or whether - as is usually the case - forecasts will be recalibrated and begin to overshoot the data.
My sense at the moment is that this hasn't happened, forecasters are still leery of embracing the lift in the global economy in the same way as they have been uncomfortable with the stock market and commodities rally in recent months.
The big question is whether the big uptick we've seen in the rise of input costs - specifically via the lift in oil - and the base effect that this is having on global inflation will last. ECB president Draghi has already given his verdict saying recently that he'll loook through this rise based on oil.
But the fact that the global economy's growth profile has improved, and China is now exporting inflation again, suggests there may be more to this global upswing than just oil. Mario Draghi might be surprised in a few months time.
Have a great day's trading.