Chinese data confirms solid economic activityChina inflation, trade
China consumer prices: Consumer prices rose by 1.8 per cent in the year to May (forecast 1.8 per cent), in line with the April result. Chinese consumer prices: Food prices fell 1.3 per cent in May to stand 0.1 per cent higher than a year ago. Non-food prices rose 0.1 per cent to stand 2.2 per cent higher than a year ago.
China business inflation: Producer prices rose by 4.1 per cent in the year to May (forecast 3.9 per cent), up from 3.4 per cent in the year to April.
China trade: Exports rose by 12.6 per cent in the year to May (forecast 10 per cent) with imports up 26 per cent (forecast 18.7 per cent). The trade surplus eased from US$28.38 billion to $24.92 billion. The Chinese data have implications for the currency markets and therefore exporters and importers.
What does it all mean?
• Chinese non-food inflation remains comfortably between 2.0-2.5 per cent. The concern is that the cost of acquiring and processing raw materials continues to rise. Whilever costs for businesses grow at a faster pace 3 per cent, it will be remain a watching brief for policymakers. The concern is that margins and profits could be affected, worsening the debt position for corporates.
• The trade data shows that the economy is growing at a firm clip. Imports are being sucked in to fuel manufacturing activity, especially infrastructure building. Chinese imports from Australia especially recorded solid annual gains in May.
• The high trade surplus with the US will remain in focus, although China is living up to its promise in bringing in more imports.
What do the figures show?
China inflation (May):
• Consumer prices rose by 1.8 per cent in the year to May (forecast 1.8 per cent), in line with the April result.
• Consumer prices fell by 0.2 per cent after falling by 0.2 per cent in April. Food prices fell by 1.3 per cent in May to stand 0.1 per cent higher than a year ago. Non-food prices rose 0.1 per cent to stand 2.2 per cent higher than a year ago.
• Over the year, food and tobacco prices rose by 0.7 per cent; clothing rose 1.1 per cent; rent, fuel & utilities rose by 2.2 per cent; household goods and appliances rose 1.5 per cent; transport and communications rose 1.8 per cent; education & entertainment rose 1.9 per cent; healthcare rose 5.1 per cent; and other goods and services were up 1.0 per cent.
• Producer prices rose by 4.1 per cent in the year to May (forecast 3.9 per cent), up from 3.4 per cent in the year to April.
• Over the year, the prices of raw materials were up by 7.4 per cent with the cost of processing up 4.4 per cent. The means of production were up 5.4 per cent with extraction costs up 8.1 per cent.
• Over the year prices of consumer goods rose just 0.3 per cent with consumer durables down 0.7 per cent over the year, “daily use” goods up 1.1 per cent and clothing up just 0.3 per cent. China trade (May):
• Exports rose by 12.6 per cent in the year to May (forecast 10 per cent) with imports up 26 per cent (forecast 18.7 per cent). The trade surplus eased from US$28.38 billion to $24.92 billion (forecast US$31.9 billion).
• China’s trade surplus with the US rose from US$22.15 billion to US$24.58 billion.
• Reuters reports: “For January-May, the surplus (with the US) stood at US$104.85 billion, compared with about US$92.9 billion in the same period last year. China’s exports to the United States rose 11.6 percent in May from a year earlier, compared with a 9.7 percent rise in April. Its imports from the United States rose 11.4 percent in May, far slower than the 20.3 percent growth shown in April.”
What is the importance of the economic data?
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.
What are the implications for interest rates and investors?
• Producer price inflation and ongoing trade surpluses with the US are the key issues.
• For Australia, the solid lift in imports and high business inflation are encouraging as they signify maintenance of solid economic activity.
• CommSec doesn’t expect a change in Australian interest rates in the near term.
Published by Craig James, Chief Economist, CommSec