China inflation: The world depends, still, on American consumption and Chinese production. Both show signs of heading in unwanted directions. Just after publication of weak US job figures, China’s trade and inflation data revealed an economy in urgent need of slowdown. Together, those are gloomy signs for global growth.
China’s consumer prices rose 6.4 per cent in the year to June. Within that, pork rose a sizzling 57 per cent. But it is the widespread price rises that create concern. The main causes are money sloshing around from two years of prodigious credit growth, and rising wages. China raised rates last week, but further decisive tightening looks needed, and will inevitably slow the world's economic engine. In Beijing, nerves are also raw: authorities are even putting pressure on companies to help keep a lid on inflation. Private equity group Blackstone, according to reports in the FT, sold out of a vegetable trader earlier this year for fear it would get drawn into a state plans to try to control food prices. On the other side of the globe, a slump in demand is brewing. Unemployment in the US ticked up to 9.2 per cent, according to data out on July 8, with the world’s largest economy adding far fewer jobs than hoped. The read-across for demand is already showing in China. Its exports to the United States grew just 9.8 per cent year on year, around half the Middle Kingdom’s overall run rate. Exports to the EU fared little better, showing the troubled euro zone is in no position to take up the slack.
This three-pronged global slowdown is likely to be keenly felt across the world. China’s commodity demands are already moderating quite sharply, with petroleum volumes down 11.5 per cent in June, and copper volumes down 15 per cent. There could be further trimming if reports that China is rethinking lavish spending plans for projects like high-speed railways prove true. But though this is painful, it is not necessarily terrible. Chinese moderation will rein in investment excesses and ward off a so-called “hard landing” which would create shockwaves around the world. High US unemployment, by constraining demand for imports, may actually push export-hooked economies to rebalance. Many investors will be fearful. Actually, the cocktail of Chinese inflation and a still-soft US economy may be the better of two evils. The alternative could be more toxic.
