Reviewing China’s Inflation Data: Why This Is Important For Traders

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After the shocking decision by the ECB yesterday, which decided to keep the rates stable, but unexpectedly decided to start tapering the QE from April to December, deducting 10B Euros from the current QE, the markets has stabilized and still digesting the ECB decision.

During the Asian session, another important set of economic figures came out to add more volatility, including China’s CPI and PPI data. In today’s article, we will take a look at the Chinese data and what does it mean for the Chinese Yuan and the PBoC.

Definitions:

Consumer Price Index: This index measures the change in the price of goods and services purchased by consumers. The average price of various goods and services are sampled and then compared to the sampling done a year earlier. Released monthly, usually about 10 days after the month ends.

Producer Price Index: Another inflation measure, but it measures the change in the price of goods purchased and sold by producers. Released monthly, usually about 10 days after the month ends.

Why This Is Important For Traders

Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to respond by raising interest rates.

Both figures are considered as a leading indicator of consumer & producer inflation – when producers pay and charge more for goods the higher costs are usually passed on to the consumer.

Outcomes

Indicator

Actual

Forecast

Prior

CPI MoM

0.1%

0.1%

-0.1%

CPI YoY

2.3%

2.2%

2.1%

PPI YoY

3.3%

2.2%

1.2%

Today’s economic releases from China had a notable impact on CNH, which edged higher above 6.90 again all the way to as high as 6.93 until this report is released. The reason behind that is, the YoY CPI edged higher to the highest level since April, and it’s the fourth highest reading of this year.

Moreover, the PPI posted the biggest increase since November of 2011, which is actually not a good news for the central bank, as higher inflation would force the bank to rethink about its stimulus measures. In the meantime, such bounce in these data, showed only a slight positive impact on CNH. It seems that the central bank has intervened again to keep the Yuan lower.

This is mostly related to politics and economics. Yesterday, the trade data wasn’t great, since the exports increased only by 0.1%, while imports jumped significantly. In the meantime, the Yuan devaluation is likely to continue, despite the recent inflation data. Traders should keep an eye on the upcoming data, which likely to keep the bank active in the currency market.

CNH May Test 7.0 Soon

As we mentioned in our previous reports, the central bank remains very active in the currency market. With Donald Trump is few weeks away from being the President of the united states, China may keep on pressuring the Yuan, since that the relationship with the United States might not be in a good condition from now on. Therefore, we suspect CNH might test 7.0, which will not please the US.

 

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Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.

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