China’s manufacturing PMI falls below 50, indicating a contraction of manufacturing activities, people might start to wonder again whether there will be a hard landing. The first half economic data was robust, with GDP growing at 9.5% over a year ago while inflation hit a new high at 6.4%, indicating that policy makers will have more room to tighten monetary policy.
Yesterday’s PMI flash estimate, however, suggests that things do not look as good as the earlier data suggested.
The chart below shows the official PMI (instead of the HSBC PMI). As you can see, the headline figure has been falling for some months now, while inventory is climbing. Hardly a good sign.
inflation in Hong Kong continues to rise. The latest composite consumer price index (CPI) for June increased by 5.6% from a year ago, vs. the 5.2% yoy rise in May. Excluding one-off relief measures, the inflation rate would be 5.5% yoy vs. 5.1% in May. Once again, CPI (A), which reflects the consumer prices of lower end of household expenditure (i.e. low-income families) rose 5.9%, higher than the rest of the income group.
Inflation in June was driven by alcoholic drinks and tobacco due to the increase of tobacco duty, food, housing, and electricity, gas and water, while prices of durable goods fell.
Given the record high inflation in China which feeds through to Hong Kong, together with the slowly appreciating Chinese Yuan, this is hardly a very surprising result as we consume a lot from China. Inflation in China is not quite yet under control (indeed, one may argue that it is out of control), but the consensus view (and mine) is that inflation will ease towards the end of this year even though it will most probably not hitting the overall full-year target of 4%. We are seeing less liquidity in flow in the recent months compared with 2009 and 2010, and that will imply a lower inflationary pressure in the future, although it is unclear when.