Wednesday, February 8, 2012

China's CPI disappoints

An unexpected move to the upside in China's CPI has surprised economists and market participants. The 4.5% actual number is higher than the expectation of 4.1%. Normally this would not be an issue, but China is now at a critical juncture.

China CPI

This elevated inflation is one of the reasons the PBoC has not moved aggressively on easing, focusing instead on targeted programs. The higher inflation levels will constrain the central bank from significant further stimulus, risking a "hard landing". This would typically be a negative for global equity and commodity markets. So far however, neither the Shanghai Stock Exchange Index (below) nor oil prices are reacting to this news. Europe nearing the Greek solution and the US "robo-signing" deal seem to be taking the center stage now.

Shanghai Stock Exchange A Share Index
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