China’s inflation slows in November 2018

China producer and consumer prices came out over the weekend. Data showed that factory prices increased at the slowest pace in two years.

Producer price index (PPI) which measures the prices that businesses pay for the goods and services increased by 2.7% on an annualized basis in November.

In October 2018, China’s PPI increased by 3.3%, data from the statistics bureau showed last week.

The decline in PPI was in line with the median estimates. On a month over month basis, PPI fell by 0.2% compared to the 0.4% gain seen in October. The declines came as factory activity was reportedly weaker as new orders slowed. Profit growth for industrial firms softened for six consecutive months.

The slowdown in the domestic demand added to growing concerns in China which is also caught up in the trade war against the United States.

Consumer prices data showed a 2.2% increase in November from the year before. This was a slower pace of expansion compared to a 2.5% increase in October. The CPI data was below expectations of a 2.4% increase. China set a target of achieving the inflation target of 3% for this year which looks to be out of bounds.

On a month over month basis, China’s inflation fell by 0.3%. The decline in inflation came due to a decrease in food prices. Food price index advanced just 2.5% on the year compared to a 3.3% increase in October.

Meanwhile, the price of non-food items rose by 2.1% which was also slower compared to a 2.4% increase a month before.

Core inflation which excludes the volatile food and energy prices increased by 1.8% on the year in November 2018.

Both consumer prices and producer prices have been weaker for most of this year. The weakness comes amid waning global demand and the uncertainty created due to the U.S. and China trade wars.

Further escalation of trade concerns could potentially put pressure on China’s administration to do more to keep inflation steady. China’s economic growth could slow down as a result of the trade war uncertainty.

China’s central bank, the PBoC has repeatedly been intervening. Recently, it cut the amount of cash that banks need to hold as reserves and reduced the cash ratio four times this year already. Policy makers also pledged to cut taxes and increase infrastructure spending.

China’s trade surplus hits a record high

China’s trade surplus data with the United States reached a new peak, hitting record highs in November. Trade surplus increased despite the fact that overall export slowed amid waning global demand. Uncertainty on the trade resolution with the United States also hit sentiment slightly.

Official data showed that trade surplus with the U.S. rose to $35.6 billion as exports rose 9.8% compared to the same period last week. There was a decline of 25% in imports leading to the higher than expected trade surplus data.

Imports rose just 3%, and it widened the trade surplus to $44.7 billion. Economists attributed the increase due to lower oil prices and the fading effects that led to higher imports due to the proposed tariffs.

The trade surplus comes amid warnings that growth in China could slow in the coming quarters. Economists are eager to see how China’s growth figures size up in the first quarter of next year.

At the G-20 meeting that Argentina hosted, the U.S. and China agreed to a 90-day truce. President Trump was optimistic that China would yield to the U.S. demands to open up its markets and also increase its imports from the United States to reduce the trade deficit.

While the formal negotiations are yet to begin, many believe that it is highly unlikely for China and the U.S. to reach an agreement. This could potentially create further uncertainty in the coming months, especially by the end of the first quarter of 2019.