Sunday, August 16, 2015

2015-07 Relative Price Trends

Consumer prices in China increased 1.6% in July from a year earlier.  Purchaser prices declined -6.1% over the same period.  Two divergent trends are occurring for China's structure of production.

The rate of increase in consumer prices is accelerating.  The rate of increase hit a most recent low point of 0.80% in January, 2015.  Since then, the growth rate has mostly been accelerating, especially over the last three months.  In May, the rate was 1.20%, but has gained twenty basis points every month since then.

The rate of decrease in purchaser prices is also accelerating.  The extent of the decline in July was the largest since October, 2009.  Even though the central bank is pumping money into the economy to increase overall economic activity, the only effect it seems to be having is to make life more expensive for everyday people.

It will be interesting to see how the recent devaluation affects these prices.  China does not import many consumer goods, so the devaluation will not affect the Consumer Price Index much.  China does import most of the world's commodities, so they devaluation should be directly reflected in the Purchaser Price Index.