Chart of the Week: China’s weak inflation print reflects low domestic demand

Headline inflation in China came in at -0.1% in April (in line with both consensus and the previous month’s print) while core inflation was also unchanged at 0.5%. The weakness in the inflationary outturns reflects one of the major challenges for China’s policymakers — stimulating weak domestic demand. Fathom has consistently outlined how this has been a feature of China’s economy for more than a decade, with the household saving rate much higher in the PRC than in most other countries. This stands in stark contrast to the external side of China’s economy where the goods trade surplus continues to balloon and now stands at around $1 trillion per year. However, question marks remain about the sustainability of this export-led growth strategy, given the new US administration’s desire to erect trade barriers between the two countries (in response to what it perceives to be unfair practices deployed by the PRC). At the time of writing a deal between the world’s two largest economies appears to have been reached, although the full details are not yet known. Those details may have a significant impact on the outlook for both economies over the coming years, including their respective saving and inflation rates.

Refresh this chart in your browser | Edit the chart in Datastream

The views expressed in this article are the views of the author, not necessarily those of LSEG.

______________________________________________________________________________________