China’s Slow Inflation Brings Down Asian Markets

The consumer price index (CPI) out Friday showed prices for tradable goods and services rose 0.7 percent, with the weaker New Zealand dollar driving higher prices for overseas package holidays and petrol, according to the government’s Statistics New Zealand agency.

The UK’s Retail Prices Index also fell to 0.8% in the year to the end of September, down from 1.1% in August. Inflation based on Consumer Food Price Index (CFPI) in September 2015 (3.9 per cent) is lower than in September 2014 (6.2 per cent).

The Bank of England, which is targeting two per cent inflation, said the outlook for CPI in coming months looked weaker than it previously thought, according to the meeting minutes of its 8 September policy meeting. While the price rise in the food and beverages category nearly doubled from a month earlier to 4.29 per cent in September, inflation in cereals and products was also higher at 1.38 per cent.

China’s Customs Bureau said exports were down 1.1 per cent in September compared to the same time past year.

Devendra Kumar Pant, Chief Economist at India Ratings, said, “With favourable base affect waning, wholesale inflation is expected to increase (deflation is expected to decline)”.

Asian markets were all lower in response to the inflation figures, which came a day after data that showed imports fell for an 11th straight month in September.

Still, with consumer inflation at around half of Beijing’s 3-percent target for the year, the government has plenty of room to apply more stimulus measures to the faltering economy without the fear of prices rising too high. Excessive inflation can hurt the economy, but reasonable inflation indicates healthy demand and economic growth.

“Inflation has remained at or around 0.0% for most of this year, and we expect that this will continue over the next few months”. It was lesser than Augusts’ 2.0 percent and the expected 1.8 percent for September.

Today’s Chinese CPI essentially guaranteed further cuts to the interest rate and the reserve requirement ratio (RRR) before the year is out.