China Inflation Figures Signal Weak Demand on Softer Inflation

It is a relatively busy morning on the Asian economic calendar. Inflation was back in the spotlight after the US CPI Report on Wednesday. In contrast to the broader inflation environment, inflation figures from China have signaled weak demand and growth.

Today’s figures provided little comfort to those hoping for a pickup in demand to drive wholesale and consumer prices higher.

In April, the annual inflation rate softened from 0.7% to 0.1% versus a forecasted 0.4%. Consumer prices fell by 0.1% in April, following a 0.3% decline in March. Significantly, the producer price index was down 3.6% year-over-year in April versus 2.5% in March. Economists forecast a 3.2% decline.

The wholesale inflation figures signal further weakness in demand. While the latest figures are a boon for trade-dependent economies, including Australia and New Zealand, the inflation numbers also raise red flags, with demand and growth signals flashing red.

The inflation numbers from China followed the US CPI Report from Wednesday. US inflation remained elevated in April. The US annual inflation rate softened from 5.0% to 4.9%

AUD/USD Reaction to China Inflation

Before the China inflation numbers, the AUD/USD fell to an early low of $0.67702 before rising to a pre-stat high of $0.67959.

However, in response to the inflation numbers, the AUD/USD rose to a post-stat high of $0.67936 before falling to a low of 0.67811.

This morning, the AUD/USD was up 0.03% to $0.67810.

Next Up

Looking ahead to the US session, it is a busy day on the US economic calendar. US initial jobless claims and wholesale inflation numbers will be in focus.

Following the US CPI Report, softer wholesale inflation numbers and rising jobless claims would take further pressure off the Fed and support riskier assets.

Economists forecast initial jobless claims to increase from 242k to 245k and for the producer price index to increase 2.4% year-over-year in April versus 2.7% in March.

With inflation and the labor market in focus, we expect FOMC member commentary to also influence. FOMC member Christopher Waller is on the calendar to speak later today.

Beyond the economic calendar, the banking sector, the US debt ceiling, and corporate earnings also need consideration.