Daily update
Daily update
- China’s consumer prices have been in deflation since last July (producer prices for far longer). January consumer price deflation was the worst in over 14 years, but this is distorted. The lunar new year is (literally) a moveable feast—occurring in January 2023, and in February 2024. That distorts food price patterns, exaggerating deflation. Nonetheless, deflation trend is indicative of weak domestic demand.
- The global impact is minimal. Food prices in Shanghai have no bearing on food prices in Seattle or Stuttgart. China’s consumer price data also reflect China’s pattern of consumption, which differs from developed economy consumers’ spending. The main way China’s deflation could impact developed economies is via the consequences of China’s future policy response.
- The US Congressional Budget Office published some alarming projections on future deficits. This has some market relevance as investors can be quite puritanical about debt. However, debt is not automatically bad, and there is no magic level where it creates a problem. Structural changes also mean tax revenues and GDP tend to be higher than projected.
- The ECB economic bulletin is due, and ECB Chief Economist Lane speaks. Markets sense that the ECB will be unfashionably late to the easing party, and so investors are more focused on comments from Anglo-Saxon central bankers.
