Factory gate prices now on close watch

It has been a while since inflation data has mattered. But now, price dynamics are under scrutiny. Last month, the Consumer Price Index (CPI) and Producer Price Index (PPI) were, respectively, accelerating and decelerating. For neither is this the right direction.

Authorities prefer PPI to be elevated – boosting profits and nominal growth – and CPI to be subdued – leaving monetary policy unfettered and household purchasing power unaffected. Instead, in February, PPI was starting to moderate, while CPI hit a high not seen since 2013.

March inflation data was half-way right: consumer prices moderated, from 2.9% y/y in February to 2.1% y/y in March. However, producer prices too moderated, slipping from 3.7% y/y in February to a mere 3.1% y/y in March. That’s the lowest point since October 2016 when China was only just emerging from deflation at the factory gate.