Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Consumer prices across China are falling at the fastest pace in 15 years, as its economy struggles with weak demand.
China’s consumer price index fell 0.8% year-on-year in January, data released this morning showed. It’s the fourth straight month of declines, and the biggest contraction since 2009 after the financial crisis.
The inflation rate was dragged down by falling food prices, which dropped by 5.9% year-on-year in January.
Pork prices dropped by 17%, and were a major drag on inflation, while fresh vegetables were 12.7% cheaper than a year ago and fruit cost 9.1% less.
China’s factories continued to cut their prices last month, too. The producer price index (PPI) slid 2.5% from a year earlier in January after a 2.7% fall the previous month.
China’s consumer prices dropped into deflationary territory last summer, and prices have been flattish since.
Its economy has struggled as the bounceback following the lifting of Covid-19 restrictions falters, and as its indebted real estates sector contracts.
The drop in annual inflation puts more pressure on Beijing policymakers to take fresh steps to stimulate the economy.
China’s stock markets have rallied a little today.
Kyle Rodda, senior financial market analyst at capital.com, says the markets have “ostensibly reacted favourably” to disappointing Chinese price data.
While a very concerning sign for China’s economy, which could be becoming entrenched in a debt and deflation cycle, the markets arguably responded in a positive way to the news.
Perhaps markets see the terribly low number as a potential catalyst for more muscular monetary or fiscal stimulus from the central government, which, up until this point, has been moderate in applying countercyclical policy.
The agenda
9.30am GMT: Latest weekly data on UK economic and business activity
1.30pm GMT: US weekly jobless claims figures
3pm GMT: Bank of England policymaker Catherine Mann to give speech: “Mind the Gap(s): Inflation Data and Prospects”
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The new boss of consumer goods giant Unilever has admitted that its competitiveness “remains disappointing, despite a return to sales growth and a pick-up in profit margins.
Unilever’s CEO, Hein Schumacher, told the City:
“Today’s results show an improving financial performance, with the return to volume growth and margins rebuilding.
However, our competitiveness remains disappointing and overall performance needs to improve. We are working to address this by improving our execution to unlock Unilever’s full potential.”
Unilever reported underlying sales growth of 7.0% for 2023 – due to a 6.8% increase in pries, and just 0.2% in sales volumes.
Underlying price growth decelerated from 10.7% in the first quarter of last year to 2.8% in the fourth quarter, due to a slowdown in raw material inflation during 2023.
Nutrition and Ice Cream faced the highest input cost inflation in 2023 which translated into higher pricing, Unilever says.
Unilever’s board has approved a share buyback programme of up to €1.5 billion to be conducted during 2024.
Shares in the company have jumped by 3.4% in early trading.
In the financial markets, Japan’s Nikkei share index has closed at its highest level in 34 years.
Investors in Toyko drove the Nikkei up to its highest closing level since February 20.
Sentiment was boosted by a rally on Wall Street, where mega tech stocks continue to shine.
Shares also rallied after a high-ranking Bank of Japan (BOJ) official signaled that the central bank would only tighten policy gradually.
Reuters explains:
BOJ Deputy Governor Shinichi Uchida said in a speech that came in the middle of the morning trading session that conditions were falling into place for an exit from massive stimulus, but “even if the BOJ were to end our negative interest rate policy, it’s hard to imagine a path in which it would then keep raising the interest rate rapidly.”
Bloomberg reports that economists see deflation pressure in China continuing for at least another six months, largely because of the real estate turmoil.
While China was able to reach an official growth goal of “around 5%” in 2023, repeating a similar performance this year may be difficult without bigger efforts by policymakers.
“The prolonged property woes and stock market volatility hurt household sentiment,” said said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd.
Conditions are brightening in the UK property sector, surveyors say.
Buyer demand, agreed sales, and new instructions all moved out of negative territory in January, the latest survey from The Royal Institution of Chartered Surveyors (RICS) this morning shows.
Surveyors also reported that house prices were lower, but at a slower pace than in recent months, RICS says, with signs of stabilisation in London, Scotland and the North West of England.
RICS Senior Economist, Tarrant Parsons, says:
“The UK housing market has seen a continued improvement in buyer activity through the early part of the year, supported by the recent easing in mortgage interest rates.
Although sales volumes through much of the year ahead are likely to remain relatively subdued compared to the longer-term average, the outlook has now turned modestly brighter on a consistent basis over the past few survey reports.
Here’s Ipek Ozkardeskaya, senior analyst at Swissquote Bank, on today’s China’s inflation data:
China announced this morning that deflation accelerated in January to -0.8% y-o-y, faster than a 0.5% deflation penciled in by analysts and the fastest price drop in over 14 years. In plain English, it means that the Chinese efforts to boost growth and bring inflation back are not working according to the plan.
Money poured into the Chinese system doesn’t circulate in a way to stimulate economy – blame people who lost confidence – and the radical measures that the government has put in place to prop up equity valuations hardly help China’s battered stock markets to get back on their feet.
Today, sentiment in the CPI 300 index is mixed. I was writing yesterday that a deeper than expected deflation number will certainly encourage Chinese authorities to announce more stimulus measures. But measures alone won’t help getting the Chinese markets’ heads above water if investors don’t play along.
Another worry about the Chinese recovery is that because the Chinese dream has been dashed by a $7 trillion selloff in the equity markets, many could be tempted to take their loss and walk away in the slightest recovery. In summary, the road to a sustainable recovery seems far away.
China’s January’s -0.8% annual inflation reading could mark the low point in the current cycle, according to Lynn Song, ING’s chief economist for Greater China.
Song argues that China is not trapped in a “deflationary spiral”, and predicts that pork prices could pick due to demand in this month’s Lunar new year holidays.
Song explains:
Sequential data paints a more upbeat picture. In MoM terms, headline CPI rose 0.3%, food CPI rose 0.4%, and non-food CPI rose 0.2%. While a far cry from the above-target inflation levels seen in many other economies, these numbers do not imply China is stuck in a deflationary spiral.
Furthermore, China’s pork cycle also indicates that the drag from pork prices will also fade in the coming months. While still a major drag in January’s data, pork price inflation has actually risen for the past two months, and the December 2023 MoM change in the pig stock was the largest decline since March 2022. With expected demand for the Lunar New Year holiday in February, this could return to positive growth in next month’s release.
As such, considering the more favourable base effects for February’s data, we see a high likelihood that January’s data could mark the low point for YoY inflation in the current cycle.
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Consumer prices across China are falling at the fastest pace in 15 years, as its economy struggles with weak demand.
China’s consumer price index fell 0.8% year-on-year in January, data released this morning showed. It’s the fourth straight month of declines, and the biggest contraction since 2009 after the financial crisis.
The inflation rate was dragged down by falling food prices, which dropped by 5.9% year-on-year in January.
Pork prices dropped by 17%, and were a major drag on inflation, while fresh vegetables were 12.7% cheaper than a year ago and fruit cost 9.1% less.
China’s factories continued to cut their prices last month, too. The producer price index (PPI) slid 2.5% from a year earlier in January after a 2.7% fall the previous month.
China’s consumer prices dropped into deflationary territory last summer, and prices have been flattish since.
Its economy has struggled as the bounceback following the lifting of Covid-19 restrictions falters, and as its indebted real estates sector contracts.
The drop in annual inflation puts more pressure on Beijing policymakers to take fresh steps to stimulate the economy.
China’s stock markets have rallied a little today.
Kyle Rodda, senior financial market analyst at capital.com, says the markets have “ostensibly reacted favourably” to disappointing Chinese price data.
While a very concerning sign for China’s economy, which could be becoming entrenched in a debt and deflation cycle, the markets arguably responded in a positive way to the news.
Perhaps markets see the terribly low number as a potential catalyst for more muscular monetary or fiscal stimulus from the central government, which, up until this point, has been moderate in applying countercyclical policy.
The agenda
9.30am GMT: Latest weekly data on UK economic and business activity
1.30pm GMT: US weekly jobless claims figures
3pm GMT: Bank of England policymaker Catherine Mann to give speech: “Mind the Gap(s): Inflation Data and Prospects”
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2024-02-08 07:16:00Z
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