It also points toward an outcome very few are expecting: inflation.
Some analysts look at three years of falling prices and conclude that China’s economy must still be running well below its capacity and that Beijing therefore needs to stimulate harder to escape deflation. That reasoning is understandable but misleading.
Think of it this way: An economy emerging from a slump does not flip overnight from weak to strong. As it recovers, prices stop falling as fast – deflation becomes less severe, even before it disappears altogether.
That easing is the signal. It says the economy is approaching, or has already reached, its limits – not that it still needs more fuel.
CHINA’S DEFLATION IS QUIETLY ENDING
That is precisely what China’s data has been showing. Producer prices were still falling, but by less and less. Core consumer prices were creeping higher. Deflation, measured by the GDP deflator, was narrowing. Taken together, these trends pointed to an economy already running at or close to full capacity even before February’s figures arrived.
The latest data from China’s National Bureau of Statistics adds to the evidence. The key signal lies not in the level of prices but in the change in their direction. February CPI came in at 1.3 per cent year-on-year – a three-year high and a sharp jump from 0.2 per cent in January. Core inflation surged to 1.8 per cent – its highest reading since March 2019.
Producer prices fell 0.9 per cent year-on-year in February, narrowing sharply from the 1.4 per cent decline in January. Factory-gate deflation is easing. The pipeline from producer to consumer prices is beginning to fill.
https://www.channelnewsasia.com/commentary/china-lower-gdp-target-two-sessions-economic-outlook-5991456
