Two themes from this week’s data: China, and US inflation.
China’s 1Q data didn’t shape up to describe a dramatic recovery. Banks are certainly lending, but those loans are just being banked, whilst M1 growth continues to stall.
More importantly, the details of 1Q’s imports emphatically do not describe an industrial economy sucking in the commodities it would need to feed an industrial recovery. Quite the reverse - imports of key feedstocks and components are falling sharply. Rather, imports are being made simply to satisfy early domestic demand now.
The second theme is about US inflation. Here I focus on the terms of trade between CPI and PPI - ie, the degree to which cost-price rises are passed on to consumers. And the news here is that by March those terms of trade are back to near pre-covid levels. So unless there’s real wages pressure - and there isn’t yet - US inflation has peaked. Given the continued money and credit squeeze, I’m penciling in actual deflation in the US next year.
