China’s PPI reading for February 2021 came in at the highest level since February 2018, as the country reported large growth in exports. Higher producer prices and higher export demand, demand must be booming! Not so fast.
Just looking at these numbers, it looks like Chinese growth will pull the world out of its Covid induced economic coma (or so goes the mainstream narrative). After all, it does seem that other countries cannot stop themselves from ordering Chinese goods, with exports growing a whopping 154.9% (in USD) YoY.
But the devil’s in the details, and Chinese CPI tells a different story.
From the chart, you can see that PPI has recovered well since it hit its depths in May 2020, demonstrating that inflation has come back on the producer side. Unfortunately, CPI remains mired in its disinflationary downtrend. It has not mounted any sort of recovery since rapidly sliding from 5% to 0% in 2020.
As such, the inflationary upswing in producer prices isn’t due to robust economic growth and booming Chinese consumer demand. This is corroborated by high shipping and commodity costs, especially in copper and oil, which have caused input costs for producers to rise.
This isn’t to take away from what is clearly strong international demand for Chinese goods, which is clearly buoying producers’ orders at this point in time. There is certainly growth, at least in Chinese industry, and it definitely isn’t doom and gloom like it was at the height of Covid induced lockdowns in 2020, but it also isn’t “boom times” as well.
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