China Inflation Accelerates in February
China consumer prices rose 2.7% in February vs. consensus of 2.5% and 1.5% in January. In the same time China producer prices rose 5.4% vs. consensus of 5.1% and 4.3% in January. This obviously is starting to represent a problem for The Peoples Bank of China as CPI this high brings real interest rates to negative -0.5%. Your author believes that a rate rise is imminent which is negative for equity and commodities sector.
Chart 1. Consumer Price Index & Producer Price Index
Source: Bloomberg
Retail sales are running strong, but inflation taken in account the rise is not so stellar. We could view retail sales in China as a lagging indicator, because consumption is a byproduct of exports. So, maybe a slowdown here also.
Chart 2. China Retail Sales
Source. Bloomberg
Industrial production slowing down. The stimulus demand is wearing off, export demand not so strong.
Chart 3. China Industrial Production
Source: Bloomberg
Money supply (measured by M2) has come down almost 20% from the high. The loan issuance in January was as usual extremely strong, but an outlier (the loan issuance was moved from 2009 to 2010. The loan growth still strong, could be a fuel for inflation.
Chart 4. China Money Supply And New Loans Issuance
Source: Bloomberg
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