Chinese data got released this morning, and it seems traders are still digesting it about an hour later. The CPI came in at 1.4%, (October YoY data was 1.6%, expectations were at 1.7% for November) and PPI was significantly lower at -2.7% vs. expectations of a 0.2% drop to -2.4%. Producer price index drops were led by industrial producers’ input prices, dropping 3.2% YoY or down 0.7% MoM, and about 2% on a year-through-November basis (PPI overall -1.8% in this measurement).
For producers, it does really seem like lowered raw material costs globally is having a significant effect and this might signal increased profitability down the line. There is definitely a positive factor to this data, meaning that firms should be able to pocket a difference as long as exports keep going up and internal demand and inflation is growing.
On the CPI side, the lower value probably will allow even further easing and loosening of the reins (on property and bank lending primarily) by the People’s Bank of China, so the initial positive reaction to this data is completely understandable. I do think that any effective policy needs to be seen being indicated by the PBOC directly before this information really gets legs.