Anna 
Analysts at Commerzbank have examined the recently released macroeconomic data from China, shedding light on the Consumer Price Index (CPI), trade balance, and their potential implications.
Key Takeaways:
In September, the consumer price index increased by 0.2% month-on-month and remained flat year-on-year. While there was a temporary dip to -0.3% year-on-year in July, it’s important to note that China isn’t yet on the brink of deflation. Several factors support this view. First, the core inflation rate has held steady at 0.8% year-on-year. Second, over the past three months, despite the official average inflation rate of only 0.2%, the overall monthly CPI has remained positive. The entrenchment of deflation typically occurs when consumers expect continued price declines, and this hasn’t happened in China.
The subdued price pressures are indicative of weak domestic demand. Although low inflation provides leeway for the People’s Bank of China to introduce more monetary stimulus, it might not do so if there are further signs of economic stabilization. Upcoming GDP and economic activity data scheduled for release next week will offer insights into China’s growth performance for September and the third quarter.
Trade data unveiled a year-on-year decline in dollar-denominated exports, which improved to -6.2% from -8.8% in August. Concurrently, imports exhibited a year-on-year increase that fell to 6.2% from -7.3% in the preceding period. Adjusted for price effects, it’s anticipated that real imports will grow by approximately 4% year-on-year. The growth in real imports has been buoyed by imports of energy and raw materials, primarily used for inventory reserves. However, imports of intermediate products and capital goods continue to languish due to China’s weak economic growth momentum.
Despite the eight-day National Day Golden Week holiday and a stable yuan this week, USD/CNY remains in the vicinity of 7.30. This trend is expected to persist until economic data reveals improved or slightly accelerated economic growth in China. Simultaneously, as a response to the yuan’s weakness, the People’s Bank of China continues to set a daily fixed exchange rate of USD/CNY that is notably below the level suggested by the fixed exchange rate formula.
These indicators provide valuable insights into the economic landscape in China and its potential implications for monetary policy and global markets.
