China's deflation ugly

China’s February inflation numbers are out and are decent if your leveraged to the consumer but very poor if you depend upon production. The CPI rebounded as expected to 1.4% which is good because real rates in China (bond yields adjusted for CPI) are lower and it means financial conditions are slightly easier but it alos means a lower probability of rate cuts.

But the PPI is now crashing to post-GFC lows at -4.8%, a full half percent worse than expected:

As I have explained many times, the undulations of the PPI are an excellent proxy for the trend in the China’s industrial economy, especially around construction, steel and mining.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

China’s deflation ugly