Share markets tumbled around the world on Tuesday partly in response to some discomforting – yet contradictory – data from China. But which figure should investors place the greater faith in – one suggesting the Chinese economy is in the grip of inflationary overheating or another that indicates a cooling trend?
China Confidential's grassroots research in different sectors of the economy suggests that the cooling trend may turn out to be dominant over the coming months. But this is not to minimise the longer-term threat from inflation, which has become structural in nature and is being driven mainly by the rising prices of industrial inputs.
First, the contradictory data. The one suggesting an inflationary surge was the PMI purchasing prices index, compiled by the China Federation of Logistics and Purchasing (CFLP), which rose to 72.6 in April, an increase of 7.5 points over the March reading. This meant that the prices companies are paying for their raw materials and other inputs rose significantly in April.