China’s PPI inflation rises to a 13-year high

Chris Scicluna

Markets generally quiet in Asia; bonds a little firmer after overnight decline in UST yields
Another quiet day on Wall Street saw the S&P500 close virtually unchanged on Tuesday. However, bond yields moved lower, with the 10Y UST declining 4bps to a 6-week low of 1.53%, even as job vacancies surged to a record high in April, with a lift in the quits rate indicating increasing confidence amongst jobseekers too. US equity futures have continued to move sideways in Asia today, thus offering no direction to markets in the region. And so, with there being only a small amount of local macro news, it was a relatively quiet day in Asia, albeit with a negative bias. Chinese stocks were little changed as CPI inflation remained subdued even as surging commodity prices boosted PPI inflation to a 13-year high. Chinese policymaker concern with recent developments in commodity prices was further illustrated by a Bloomberg report suggesting that officials are considering imposing a cap on domestic thermal coal prices. In Japan, the Topix dropped 0.3% while major bourses were several tenths lower in South Korea and Taiwan. Stocks were little changed in Australia, even as the latter reported a decline in consumer sentiment following the new lockdown in Melbourne (with the community cluster seemingly contained, the stay-at-home order will be lifted on Friday, but some gathering restrictions will be retained for now). In local bond markets, yields general moved lower, taking their direction from USTs, with 10Y ACGB yields down about 4bps to 1.57%, the lowest since the third week of February.

Japan’s annual money growth slows in May
A quiet day for economic data in Japan saw the BoJ release the monetary aggregates for May. M3 expanded at an annualised pace of just 4.2% during the month, compared with more than 24% in May last year – the latter reflecting the BoJ’s accelerated asset purchases in response to the financial stress seen at the onset of the pandemic. As a result, annual growth in M3 slowed to a 10-month low of 6.9%Y/Y from 7.8%Y/Y previously. Similarly, growth in M2 slowed 1.3ppt to 7.9%Y/Y and growth in M1 slowed 1.7ppt to 11.4%Y/Y.

China’s PPI inflation hits 13-year high in May, but consumer price inflation subdued for now
The focus in China today was on the PPI and CPI reports for May. Beginning with the PPI, surging commodity prices generated an even larger uplift in inflation than markets had expected. The overall PPI output index increased a further 1.6%M/M, lifting annual inflation by 2.2ppts to a 13-year high of 9.0%Y/Y. This outcome was once again due almost solely to higher prices for producer goods, with mining prices jumping an especially large 6.5%M/M and 36.4%Y/Y. The price of manufactured producer goods increased 1.7%M/M and 7.4%Y/Y. However, at this stage there is little evidence of much pass-through to consumer goods. As it had in April, the PPI for consumer goods increased just 0.1%M/M and so was up a very modest 0.5%Y/Y. Prices for durable consumer goods increased 0.1%M/M in May, yet remained down 0.8%Y/Y. Prices for daily-use items increased 0.4%M/M and 0.5%Y/Y.

The relatively subdued inflation in consumer goods prices at the PPI level was also evident in the CPI, which in headline terms fell an unexpected 0.2%M/M in May. Base effects associated with last year’s especially heavy decline in food prices meant that annual inflation still picked up 0.4ppt to 1.3%Y/Y, but this was 0.3ppt below the consensus expectation. Food prices fell 1.7%M/M, with pork prices declining 11%M/M for a second consecutive month and fresh vegetable prices down almost 6%M/M. By contrast, non-food prices increased 0.2%M/M for a third consecutive month and so annual non-food inflation increased 0.3ppts to a 16-month high of 1.6%Y/Y. However, this partly reflects higher energy prices, with automotive fuel prices increasing by a further 1.6%M/M in May and so up more than 21%Y/Y. Excluding both food and energy, the CPI increased by a very modest 0.1%M/M. And while this was still sufficient to cause this measure of core inflation to increase 0.2ppts to a 10-month high of 0.9%Y/Y, this remains very subdued relative to the PBoC’s target of 3% inflation.

German exports remain subdued, still below pre-pandemic level in April
Just as German industrial production remains firmly below the pre-pandemic level, not least held back by supply bottlenecks, German exports remain disappointingly subdued too. While this morning’s German trade data - today's only notable economic release from the euro area - reported a twelfth successive monthly rise in the value of exports to be up 47.7%Y/Y from last year’s trough, the increase of just 0.3%M/M (seasonally adjusted) left them still 0.5% below the pre-pandemic level of February 2020. In contrast, while goods imports were up 33.2%Y/Y and fell back 1.7%M/M in April, they were still 5.5% above the equivalent pre-pandemic level. And while the level of exports was 1.4% above the Q1 average, imports were up 4.0% above the Q1 average. The trade surplus on an adjusted basis rose €1.8bn to €15.8bn, nevertheless still down €1.5bn from the average of the prior six months and more than €5bn below January’s post-pandemic peak. With new orders from abroad up more than 12% above the February 2020 level in April, exports should accelerate as soon as supply bottlenecks are eased.

Only wholesale trade data ahead in the US today
With tomorrow’s CPI report now within view, today’s release of final wholesale trade data for April is unlikely to elicit much market reaction. But for the record Daiwa America’s Mike Moran looks for a 1.0%M/M lift in sales and an increase of 0.8%M/M in inventories (the latter in line with the advance reading released last month).

Aussie consumer confidence slips to 5-month low in June as Melbourne lockdown weighs
Australia’s Westpac consumer confidence index fell 5.2%M/M to 107.2 in June. Coming after a similar decline in May – albeit from what had been an 11-year high – the index now stands at its lowest level since January. The largest decline occurred in the index measure the year-ahead outlook for the economy, which fell 10.3%M/M to also reach a five-month low. By contrast, the index measuring respondents’ outlook for the next five years slipped just 1.4%. It is very likely that the decline in the near-term outlook owes to the recent lockdown in Melbourne, which began before this survey was in the field, with confidence in the state of Victoria declining 7.5%M/M and confidence in South Australia – where the latest outbreak had originated from – down 10.9%M/M. With the outbreak in Melbourne now seeming contained – the lockdown will end on Friday – confidence should rebound somewhat next month.

Kiwi business activity strengthens further; firms’ intention to raise prices at record high
The focus in New Zealand today was the release of preliminary business survey information for June. Encouragingly, the ANZ’s closely-watched Activity Outlook index improved a further 2pts to 29.1, marking the highest reading since September 2017 and comfortably above the long-run average for the index. Firms’ investment intentions also increased to a new four-year high, while employment intentions were only fractionally weaker than the four-year high posted in May. Perhaps of greater interest, the net proportion of firms reporting an intention to raise their selling prices increased to a fresh record high of 63% in June, while firms’ forecast of year-ahead inflation increased 0.11ppt to 2.33% – just below the previous cyclical high reached in November 2017.

In other Kiwi news, ahead of next week’s national accounts, Statistics New Zealand released some further sectoral activity indicators pertaining to Q1. The volume of manufacturing sales increased 0.4%Q/Q for a second consecutive quarter, lifting annual growth to 4.2%Y/Y from 2.0%Y/Y previously. Excluding the meat and dairy sector, sales grew 0.8%Q/Q and 3.4%Y/Y. The news from the wholesale trade sector was even more positive, with the value of sales increasing 3.7%Q/Q and 6.1%Y/Y. So with recent upside surprises to retail and construction data too, it seems likely that activity has expanded in Q1, in contrast to the RBNZ’s recent estimate of a 0.6%Q/Q decline.

Categories : 

Back to research list


This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at  /about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at