China’s headline inflation measure fell from 2.3% to 2.0% - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, notes that China’s headline inflation measure fell from 2.3% to 2.0% unexpectedly, while PPI rose again to -2.8%, more than expected, and the highest since November 2014.

Key Quotes

“It has to be said that there are signs that the recent incredible surge in Chinese credit is understandably having some impact on industrial production, and those PPI data are further evidence of that fact. Nonetheless, if it takes on-book (to say nothing of off-book!) borrowing of around 14% of GDP in four months just to ease, not erase, factory-gate deflation then you know something is wrong somewhere.

On that front note that yesterday’s Chinese trade data showed an expected 4.1% y-o-y drop in exports but a surprising -0.4% y-o-y import print, the highest since October 2014. Unfortunately, with imports from Hong Kong improbably up 243% y-o-y(!), it appears that a lot of that ‘strength’ is actually capital flight via import over-invoicing.”