Weak Consumer Demand Pushes China’s Inflation Lower Despite Rising Energy Costs - FT

The Financial Times reports that China's inflation has fallen as weak consumer demand outweighed the upward pressure from rising energy costs. The key transmission channel runs through domestic demand: soft household spending keeps consumer prices subdued, which reduces the likelihood of near-term monetary tightening and leaves room for policy easing if growth weakens further. Chinese onshore equities and the yuan are most exposed, since a disinflationary backdrop tends to weigh on earnings expectations for consumer-facing sectors and can widen the rate differential against major economies, adding pressure on the currency. Traders should watch the next National Bureau of Statistics release on consumer and producer prices, where any divergence between the CPI reading and the PPI, which is more sensitive to energy input costs, will signal whether the energy shock is being absorbed by margins or passed through to the economy.

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