Bloomberg: China Factory Prices Rising Fastest in 5 Years Adds to Reflation
Only four months out of a multi-year factory deflation, the world’s second-largest economy is poised to export inflation around the globe through its supply chains as manufacturers squeezed by higher input costs raise asking prices. Whether that rebound will be sustained hinges on how the global economy fares under a Donald Trump presidency and whether trade tensions flare between the U.S. and China.China can't transmit the prices globally unless others are willing to pay higher prices. If not, the reflation will collapse as it has at every turn since 2011.
"Reflation continues in the factory sector," said Julia Wang, an economist at HSBC Holdings Plc in Hong Kong. "The stable CPI suggests that the reflation is confined mostly in the industrial sector and hasn’t filtered into the real economy. So the PBOC would possibly not respond to it until inflation expands to the real economy."
Another factor is the yuan. A 5.5 percent depreciation in the yuan sends USDCNY to 7.30. If inflation in China accelerates, will the yuan rebound because investors see Chinese growth picking up, or will Chinese investors dump the yuan even faster to buy real or foreign currency denominated assets?