China Consumer Prices Signal Weaker Demand, Sliding by 1.0% in March

China: Deflation Pressures Return After the Lunar New Year

Consumer and producer price figures from China garnered investor attention on Thursday. The March data signaled a weaker demand environment.

Producer prices dropped by 2.8% year-on-year, following a 2.7% decrease in February. Economists forecast producer prices to drop by 2.8%.

In a low-demand environment, producers reduce prices to compete for new business. Downward trends in producer prices dampen consumer price pressures.

Consumer price trends signaled a pullback in consumer spending. The annual inflation rate dropped from 0.7% to 0.1% in March. Economists expected an inflation rate of 0.4%.

Consumer prices decreased by 1.0% month-on-month, reversing the 1% increase in February. Economists predicted a 0.5% decline.

The Chinese Lunar New Year skewed consumer price trends in February. Nevertheless, producer prices have trended lower in recent months. In January, producer prices were down 2.5% year-on-year.

Recent economic indicators suggested an improving demand environment. Survey-based PMI numbers from China signaled an improving demand environment. However, the surveys also highlighted falling input prices. Firms attributed falling input prices to lower costs for raw materials.

The Aussie Dollar Reaction to Inflation Numbers from China

Before the inflation figures, the AUD/USD fell to a low of $0.65018 before rising to a high of $0.65167.

However, in response to the inflation figures, the AUD/USD fell to a low of $0.65095 before rising to a high of $0.65176.

On Thursday, the AUD/USD was up 0.06% to $0.65159.

US Economic Calendar: Producer Prices and FOMC Member Chatter

On Thursday, US producer prices will attract investor interest. After the US CPI Report, upward trends in US producer prices could signal a higher consumer price outlook. Producers increase prices in a rising demand environment, passing costs onto consumers.

Economists expect producer prices to advance by 2.2% year-on-year after increasing 1.6% in February. Moreover, economists predict core producer prices to increase 2.3% year-on-year. In February, core producer prices rose by 2.0%.

Beyond the inflation numbers, US labor market data will also be in focus. Economists forecast US initial jobless claims to fall from 221k to 215k in the week ending April 6. However, barring an unexpected spike in jobless claims, producer price trends will likely have more impact.

Investors should track FOMC member reactions to the March inflation numbers. FOMC members Raphael Bostic, Susan Collins, and John Williams are on the calendar to speak.