Consumer Inflation in China Hits a 5 Year Low

China released a whole slew of economic data this morning including consumer inflation which has now hit a 5 year low and a level not seen since January 2010. This support investor fears that the world’s second largest economy is slowing down. But, is this a bad thing? This does give Beijing more room to enact bigger stimulus measures if they so choose.

The consumer price index (CPI) was up 1.6 percent from last year. This slowdown in growth is thanks, in part, to lower commodity and food prices. We had expected the CPI to grow at 1.7 percent after rising, slowly, at two percent in August. Whole sale prices contracted 1.8 percent. This was a bit worse than the -1.6 percent we expected. Producer prices have been falling since February 2012. Why? We can look at the declining commodity prices as well as weakening demand and overcapacity.

After the data release, the AUD/USD, which follows China’s economy closely, falling before recovering to trade near $0.87. As far as China’s equity markets, the mainland Shanghai Composite was up 0.2 percent, after the news, as well as the Hong Kong Hang Seng Index.

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