Chinese economic data is looking up.
- Retail sales in October were up 14.5 per cent on a year ago (consensus 14.0 per cent); industrial production was up 9.6 per cent (consensus 9.4 per cent); and fixed asset investment over the first 10 months of 2012 was up by 20.7 per cent (consensus 20.6 per cent).
- Inflation still well contained. China’s annual inflation rate eased from 1.9 per cent to a near 3-year low of 1.7 per cent in October, below forecasts. Over the month inflation fell by 0.1 per cent. Food prices fell by 0.8 per cent in October while non-food prices rose by 0.3 per cent.
- Business deflation. Producer prices rose by 0.2 per cent in October after rising by 0.1 per cent in September. Producer prices are 2.8 per cent lower than a year ago (forecast, 2.7 per cent decline).
- The data is encouraging: recovering growth and low inflation.
What does it all mean?
- The latest Chinese economic data is encouraging – not just for China, but also for Australia and the globe. Our largest trading partner has achieved a soft landing with inflation still easing and activity indicators lifting at a stronger pace in October.
- For the new Chinese leadership, it is a good place to start. Not only do the indicators suggest that growth is starting to recover, but low inflation keeps the door open for further stimulus. But the recovery is still in its infancy. We can’t celebrate too early or wildly.
- The authorities had wanted the economic recovery to be driven more by the consumer rather than production. And that aim – at this early stage – is on track. Food prices are falling, giving consumers more money to spend and retail sales is responding.
What do the figures show?
- The annual rate of consumer price inflation eased from 1.9 per cent to 1.7 in October, below expectations centered on a result near 1.9 per cent. Over the month inflation fell by 0.1 per cent, below forecasts centered on a 0.1 per cent increase and below the 0.3 per cent gain in September.
- Food prices fell by 0.8 per cent in October with non-food prices up by 0.3 per cent. Over the year to October, food price rose by 1.8 per cent (2.3 per cent annual in September) while non-food prices were up by 1.7 per cent (1.7 per cent in September).
- Producer prices (business inflation) rose by 0.2 per cent in October after rising 0.1 per cent in September and falling 0.5 per cent in August. Producer prices are 2.8 per cent lower than a year ago after falling at a 3.6 per cent annual pace in September. The annual rate of producer price inflation peaked in July 2011 at 7.5 per cent and had been declining consistently each month to September.
- Industrial output expanded at a 9.6 per cent annual pace in October, in line with 9.6 per cent growth in the year to September but above forecasts centred on a result near 9.4 per cent. Production growth has bottomed and should lift modestly over the next few months.
- China’s urban fixed asset investment, such as spending on roads and power plants, grew at a 20.7 per cent in 2012 to date (January – October), above forecasts (20.6 per cent) and up from 20.5 per cent in the nine months to September.
- Retail sales grew at a 14.5 per cent annual rate in October (forecast 14.0 per cent), up from 14.2 per cent in the year to September and 13.2 per cent in the year to August.
What is the importance of the economic data?
- China’s National Bureau of Statistics releases its monthly economic statistics around the 10th of each month. Quarterly GDP data is released around the 16th of January, April, July and October. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.
What are the implications for interest rates and investors?
- The Reserve Bank kept interest rates on hold last week, in part, because it felt that the Chinese economy was recovering. And that decision has received early vindication.
- The latest Chinese data is supportive for resource stocks, commodity prices and the Aussie dollar. Australian businesses will need to get used to a currency near US104 cents – at least in the short term.
- Now the spotlight shifts from the second largest economy to the largest. The US needs to deal with the “fiscal cliff” and deal with it quickly and decisively.
