Can China tolerate production inflation of 30%?
The Chinese government has asked Chinese producers and administrators to secure energy at any cost, and this is in danger of being realized. In less than two weeks, China 's coal futures rose more than 16% to an all-time high, surpassing 1,500 yuan per ton overnight, despite market stops.
The doubling of coal prices in the past month is terrible news for Beijing, which is under increasing pressure to cut rates or otherwise ease financial conditions to contain the Evergrande "disaster", but it finds itself having to deal with. dealing with enormous inflationary expectations.
Historically, Chinese coal prices have been the most correct indicator in predicting PPI, China's producer inflation. This means that the current producer inflation of 9.5% risks reaching 30% soon due to energy prices.
Needless to say, if China's PPI hit 30%, even in the absence of double-digit consumer inflation, it would be a huge disaster: profit margins would plummet, the slump in already scarce cash flows would lead to even more defaults and supply chain bottlenecks, even as the rush to get goods “at any price” continues to push costs – and PPI – even higher. Meanwhile, if producers try to pass on some of the costs and peaks in the consumer cost index are to be expected.
Now with double-digit consumer inflation, in the presence of a crisis in the real estate sector linked to the bankruptcy not only of Evergrande, but also of other large companies in the sector, it can be the injection of ever greater tensions from the point of view. social, something that Xi Jinping must avoid at all costs. Like? Isn't it that the growing tension and the fiery declarations towards Taiwan are generated precisely by the need to turn internal tensions outward? An ever-present game, but very, very dangerous.
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Article Can China Tolerate 30% Producer Inflation? comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-cina-puo-tollerare-uninflazione-alla-produzione-del-30/ on Tue, 12 Oct 2021 06:00:58 +0000.