Chinese Latest CPI Reading Screams Deflation

Chinese CPI just came out and it was below expectations. For an economy allegedly growing at 6.9%, to have a CPI below 1.5% sounds freaking ridiculous.

I bet if real accountants looked into China, they’d find the GDP growth to be more in line with America, around 2%.

The consumer-price index rose 1.3 percent in October from a year earlier, according to the National Bureau of Statistics. That compared with a 1.5 percent median estimate in a Bloomberg survey and 1.6 percent in September. The producer-price index fell 5.9 percent, extending its streak of negative readings to 44 months.

The lingering deflation risks, along with declines in trade, flag the need for additional stimulus as inflation remains about half the government’s target pace. The People’s Bank of China — which has cut interest rates six times in the past year — is seeking to stabilize the economy without fueling a renewed surge in debt.

“The risk of deflation has accentuated,” said Liu Li-Gang, the chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “This requires the PBOC to engage in more aggressive policy easing.”

Food prices rose 1.9 percent from a year earlier, from 2.7 percent in September. Non food prices climbed 0.9 percent. Prices of consumer goods increased 1 percent, while services increased 1.9 percent, the data showed.

The inflation reading follows a tepid trade report that suggested the world’s second-biggest economy isn’t likely to get a near-term boost from global demand.

Overseas shipments dropped 6.9 percent in October in dollar terms, the customs administration said Sunday, while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8 percent, leaving a record trade surplus of $61.6 billion.

Muted inflation gives the PBOC additional room for further easing. The central bank will maintain stable monetary policy and create a neutral monetary and financial environment for economic restructuring, according to the third-quarter Monetary Policy Implementation Report it released Friday. The PBOC said the economy faces downward pressure and inflation is likely to be low.

China’s economy grew 6.9 percent in the three months through September from a year earlier, the slowest quarterly increase since the start of 2009. For the full year, growth is set to be the slowest since 1990.

Top leaders have signaled that they won’t tolerate a sharp slowdown in coming years. President Xi Jinping said last week that average annual growth should be no less than 6.5 percent in the next five years to realize the nation’s goal to double 2010 GDP and per capita income by 2020.

“Declining prices, a heavy debt burden and still high interest rates will likely weigh on corporate balance sheets, undermining their debt servicing capacity and investment demand, and worsening banks’ asset quality,” UBS Group AG analysts led by Wang Tao wrote in a report ahead of the data. “The negative feedback loop needs to be broken with more serious restructuring, helped by further monetary easing.”

Pair the woefully weak Chinese economy with ours and one has to wonder if the Fed is purposely trying to cause an equity rout. I can see no other rational explanation for hiking interest rates at a time devoid of any semblance of inflation.