Chinese Inflation Figures Raise Debate Over Beijing Stimulus

Inflation figures rise for China, US Non-Farm payrolls are weaker than expected, and falling global food prices.

China’s Consumer Price index has continued to decelerate and in come flat on an annualised basis, putting the country on the verge of deflationary territory. This marked the lowest print since February 2021 as the cost of transport saw a heavy decline. Meanwhile, when looking at the index on a month-on-month basis, consumer prices fell by 20bps, representative of the fifth consecutive deflationary print. China’s Producer Price Index also came in at -5.4%, accelerating from a -4.6% print last month as commodity prices fall while domestic and international demand slips. This marked the greatest fall in prices since the end of 2015, as investors consider the impact of faltering demand.

In the latest signal that the world’s second largest economy may be slowing, analysists are weighing up whether this data release may act as a further impetus for Beijing to consider implementing a fiscal stimulus package. This comes as the CCP aims to achieve 5% growth this

year, a figure which despite being relatively low in comparison with historic rates, will nonetheless be a challenge this year as the country comes out of Covid lockdowns and navigates through a delicate property market.

According to Bloomberg, “both gauges add to evidence that the recovery is weakening, with concerns about deflation weighing on confidence. That’s likely to spur more speculation about what potential stimulus may be in the cards to shore up the economy”.

Concerns over China’s mid to long term economic performance are continuing to mount with many economists considering the impact of country’s debt-ridden municipal governments, high levels of colleague graduate unemployment (currently around 20%), a fragile housing market and demographic pressures.

NFP Print Comes in Weaker-Than-Expected Contrasting Huge ADP Print

On Friday, US Non-Farm payrolls came in weaker-than-expected with the print indicating that the world’s largest economy added 209,000 jobs over June against the 225,000 expected. Unemployment declined to 3.6%, falling 10bps from last month, while the labour force participation rate stayed at its highest level in over three years.

Average hourly wages (annualised) also grew 4.4%, surpassing expectations by 20bps, in a further nod to the notion that the US labour market remains hot. This figure remains above the 3.5% rate many economists maintain is needed to meet the Fed’s 2% inflation target.

The NFP print came in contrast to the ADP print on Wednesday where figures surpassed expectations with 497,000 jobs being created in June, beating expectations of 228,000 and showing a significant increase from April and May.

Global Food Prices Fall

Last week, The FAO World Food Price Index fell to its lowest level since April 2021. The June reading indicated that food prices are now some 23.4% below the all-time peak seen last March as supply-side concerns rose due to the full-scale Russian invasion of Ukraine. The index saw the cost of cereals falling 2.1% while dairy prices slipped 80bps. The fall in global food prices will be a welcome sign to economies around the world which have seen considerable inflationary pressures on food – a key driver of rising consumer price indexes.