Aurelia Butler

The producer price index (PPI) rose 6.1% year-on-year, the National Bureau of Statistics (NBS) said on Saturday, after a 6.4% rise in May. Analysts had expected an increase in the PPI rate of 6.0% in a Reuters poll.The slower rise in the PPI was driven by the resumption of additional industrial production, stable supply chains in key sectors and government polices to stabilise commodity prices, NBS official Dong Lijuan said in a separate statement.Inflation in the ferrous metal mining and processing industry decreased the most, while producer prices for the oil and gas extraction industry rose the most, according to NBS. The falling factory-gate inflation reflects easing cost pressure on the middle and downstream manufacturers, Zhou Maohua, an analyst at China Everbright (OTC:CHFFF) Bank, said in a note.China’s producer inflation has cooled for six consecutive months. That contrasts sharply with soaring global inflation that has prompted major central banks in the rest of the world to raise interest rates.The consumer inflation rate in the world’s second-largest economy increased by the highest in nearly two years though it remained within the country’s target of an around 3% rise. The pickup in consumer inflation follows a surge in fuel prices and suggests policymakers will need to keep a close watch on any persistent cost pressures amid the global surge in prices.The consumer price index (CPI) increased 2.5% from a year earlier, widening from a 2.1% gain in May and the highest in 23 months. In a Reuters poll, the CPI was expected to rise 2.4%.The CPI stayed flat month-on-month, after the 0.2% drop in May, beating the 0.1% decline in a Reuters poll. Vehicle fuel prices soared 32.8% in June, the NBS said. “China will continue to face the dual pressure of structural inflation and imported inflation. The slow recovery of domestic demand will also raise up the headline consumer inflation,” said Ying Xiwen, a senior analyst at Minsheng Bank. Overall, CPI is expected to rise moderately and very likely to surpass 3% in the second half of the year, but the whole year average level will still be within the annual target, Ying said. China’s economy has showed some signs of recovery in recent months after a sharp COVID-induced slump because extensive lockdowns in cities including the commercial hub Shanghai.However, headwinds to growth persist, including worries of any recurring waves of COVID infections. Some areas have recently reported flare-ups in cases, which could slow or even stymie a recovery. [nL4N2YQ00O]In order to boost the flagging economy, China will issue 2023 advance quota for local government special bonds in the fourth quarter, with the new quota likely bigger than 1.46 trillion yuan ($218.09 billion) for 2022, sources have told Reuters.In late June, the People’s Bank of China (PBOC) Governor Yi Gang pledged to keep monetary policy accommodative to support an economic recovery.”Monetary policy faces constraints such as aggressive Fed hikes and rising inflation concerns and appears to be switching from a crisis mode into a wait-and-see mode. Looking ahead, we think the PBOC would be careful and data-dependent in calibrating its stimulus,” Citi analysts said in a note.($1 = 6.6945 Chinese yuan renminbi) More

In JM Barrie’s play Peter Pan, the audience is asked to clap if they believe in fairies. If they fail to clap, the character Tinkerbell the fairy will die. A Tinkerbell phenomenon is one that exists only because people believe in it. Central banks in the developed world are experiencing such a moment. For 30 years, they have been the dominant actors in economic policy, controlling the cycle through adjustments in interest rates and via quantitative easing. The primacy of central banks has coincided with an era of low inflation; apparent evidence of their policy-setting skills. And investors have also had faith in central banks’ ability to rescue the economy at times of stress. Equity markets tend to rally when central banks indicate they are about to ease monetary policy. Under Alan Greenspan, the long-serving chair of the US Federal Reserve, this phenomenon was known as the “Greenspan put”.Now, however, the expertise of central banks is being questioned. They have been caught out by the surge in inflation over the past 12 months and have been slow to push up interest rates to counter it. To be fair, high energy prices, linked in part to Russia’s invasion of Ukraine, have been a significant factor in inflation’s rise. Andrew Bailey, Bank of England governor, told the House of Commons that the central bank had faced an “almost unprecedented” sequence of shocks. But he added that “to forecast 10 per cent inflation and to say there isn’t a lot we can do about it is an extremely difficult place to be”. That admission of powerlessness is rather awkward. If central banks don’t deserve the blame for the recent inflation jump, maybe they don’t deserve the credit for the past three decades of subdued price rises. Low inflation was driven by the entry of China into the global economy, a move which flooded the developed world with low-cost goods. Technological changes that reduced corporate costs also played a role. Perhaps central banks weren’t really brilliant economic managers — perhaps they were just lucky.Another problem with Mr Bailey’s admission is central banks’ ability to manage expectations is crucial. If businesses believe that central banks can control inflation, they will avoid passing on raised costs in the form of higher prices for consumers; if workers believe central banks can control inflation, they will not demand higher wages in compensation for higher prices. But if they lose their faith in the banks, it becomes a free-for-all, as it was in the 1970s. At that time, Tinkerbell was stone-dead. On this measure, faith in central banks has not yet disappeared. It is possible to gauge long-term inflation expectations in the futures market. This measure shows investors are only expecting an inflation rate of 2.1 per cent in the five years after 2027. Still the surge in inflation has been a nasty shock for the bond market. The yield on the 10-year Treasury bond, which was as low as 0.54 per cent in March 2020, reached 3.43 per cent in June, its highest level in more than a decade. The 10-year bond yield has since fallen back to 3 per cent. Its recent volatility indicates that investors are now uncertain about how well the Fed can manage the economic cycle. Recent data have indicated confusingly that the labour market is still healthy but consumer confidence has dipped and the manufacturing sector is still struggling.

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But perhaps the greatest test of faith in central banks is occurring in the equity market. In June, the S&P 500 met the technical definition of a bear market when it fell more than 20 per cent from its January high. In the past, investors might have hoped for a bit of help from the Fed in the form of an interest-rate cut. Instead, just a few days later, the Fed unveiled its biggest rate increase since 1994, with a hike of three-quarters of a percentage point. Of course, central banks will maintain that the “Fed put” was never a conscious policy. When they cut rates in the face of market turmoil, they were not trying to support asset prices but to reduce the potential economic harm that a financial collapse would involve. Now that inflation has returned, central banks cannot afford to worry about the financial markets — they just need to slow those price pressures down. Rather than playing the role of Tinkerbell, central banks have turned into the crocodile in Peter Pan that relentlessly pursues Captain Hook. Investors used to believe central banks would rescue them — now they worry the banks might bury them. More

The Central American country has been analyzing its inclusion in the group for over a decade, though some former governments have rejected it.The Pacific Alliance seeks stronger economic and commercial ties, based on principles of free movement of goods, services and capital while targeting nations clustered around Asia’s Pacific coast, home to some of the fastest-growing economies.Chaves, a maverick economist, took office in May.Speaking to reporters, he explained that Costa Rica’s main objective is to open the country “to the east of the world, where we have little trade and we have ambitions to enter a trans-Pacific agreement, to get closer to countries like China.”Costa Rica has existing free trade agreements with China, Singapore and South Korea. Its economy is seen growing 3.4% this year. More