PPI deflation may be worrisome
Major economic indicators were still mostly falling in October. Industrial output was up 4.7% y/y, comparable to July and August. Investment was up 3.4% y/y, down 1.3 pps from Q3. Retail sales of social consumption goods were up 7.2% y/y, and the real growth rate of this indicator was 4.9% y/y, down 0.4 and 0.8 pps from Q3, respectively.
Exports were up 2.1% y/y in October, and imports fell -3.5% y/y, down 1.8 and 0.6 pps from Q3. Exports to the United States fell -13.8% y/y, but were up 6.2 pps from September. Meanwhile, the trade surplus is growing dramatically, and was up 36.6% y/y.
The societal financing scale has been slowing since July, and was up only 0.8% y/y in Q3, a plunge from its 40.6% and 22.4% y/y rises in Q1 and Q2, respectively. In particular, in October it fell -16.1% y/y. M2 was up 8.4% y/y, and M1 rose 3.3% y/y. Both have been basically stable.
CPI appreciated significantly in October, rising 3.8% y/y, up 0.8 pps from September. Meat prices are the only driving factor, and meat price appreciation is viewed by the public as cyclical, and unsustainable. The ex-factory price index of industrial goods was up 0.1% m/m, and down -1.6% y/y, down 0.4 pps from September.
The PPI, seen as a key indicator of corporate profitability, was down -1.6% in October from a year earlier -- its steepest decline since July 2016. This aligns with other indicators showing shrinking manufacturing activity in October, with the official PMI indicating contraction for a sixth straight month. Both reflect weak domestic demand due to growth slowdown, and external demand due to trade war. The figures also indicate a future insufficient growth source. In response, for the first time since 2016, China on November 20th cut the interest rate on its one-year MLF loans by 5 basis points. Future further interest rate cuts, though, are constrained by high inflation.
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