China’s producers lose pricing power

China PPI Dec11.pngChina’s economy is slowing rather fast. That’s the only conclusion to be drawn from the above chart. It shows a major collapse in producer price inflation (PPI), from July’s 7.5% peak to just 2.7% in November.

The decline from September’s 6.5% level has been particularly dramatic, with the index down nearly 2/3rds in just 2 months.

Usually such declines are linked to major falls in commodity prices, as in 2008. But whilst some commodities have slipped in price, others such as crude oil are still at Q3 levels. So one has to conclude that producers have suffered a major loss in pricing power due to a downturn in demand.

Thus the PPI numbers are another sign that the ending of the credit bubble is having a major impact. And once bubbles burst, particularly those of China’s size, it usually takes a very long while for confidence to be restored.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to China’s producers lose pricing power

  1. Claudia 23 February, 2012 at 9:11 pm #

    There’s smetohing I don’t quite understand. Maybe I’m misreading it. Why does it sound like Obama is *asking* China to appreciate the yuan? Doesn’t that mean Obama is *asking* China to dump the dollar peg?

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