China Consumer Prices Forecast Inflation, While Producer Results Show Brighter Prospects

 

Inflationary pressure could increase later this year, but light is at the end of the tunnel when it comes to heavy industry prices in China. That's according to new data out from a business school in China, CKGSB.

The CKGSB Business Conditions Index (BCI) registered 61.4 in December.

The CKGSB Business Conditions Index (BCI), which surveys hundreds of executives at leading Chinese companies and asks them to forecast business conditions over the next six months, registered 61.4 in December, a slight improvement on November's overall index of 60.8.

With a steady climb over the past four months, the BCI shows that for CKGSB's sample of relatively successful businesses operating in China, optimism about prospects over the next half year is continuing to grow.

Meanwhile, the consumer prices index rose in December, from 61.1 to 64.9, while the producer prices index broke through the threshold of 50, registering 52.4.

Inflation taking shape

"The accepted view is that inflationary pressure will be minimal this year, but our consumer prices data shows that expectations of inflation ahead are taking shape,” says CKGSB Professor of Economics Li Wei, whose team has compiled the monthly survey data since September 2011.

“Meanwhile, an important shift has taken place this month, with the producer prices data finally rising above the confidence threshold of 50. The last time the index registered such positive prospects was in October 2014. This is in keeping with brighter prospects for heavy industry prices."

The CKGSB BCI comprises four sub-indices for corporate sales, corporate profits, corporate financing environment and inventory levels, all measuring future prospects except for the financing environment, which measures the current situation.

In December, three of these four sub-indices rose. Of these, corporate sales rose from 77.5 to 80.7, corporate profits rose from 64.3 to 66.3 and the financing environment index rose to 50 in December.

Prof Li added, "Overall, the financing environment for the BCI sample is less than optimal, and, given that this sample consists mainly of the leading powerhouses in the economy, SMEs, this is a critical issue for economic reforms going forward."

Elsewhere, the BCI data forecast costs, prices, investment and recruitment demand for the next six months. On the costs side, labor and overall costs indices remained above 80, with the former at 86.9 and the latter at 82.9.

Neither index has ever fallen low, nor is either likely to in the near future.

Investment and recruitment confidence levels

While investment and recruitment confidence levels have never reached the peaks of the cost indices, they have stayed consistently at the higher end of the scale. December's investment index rose to 70.3, while the recruitment index fell to 70.1. These indices are interesting because no matter how macroeconomic conditions have changed since the BCI began in September 2011, while indices such as profits and inventories have fluctuated dramatically – as has the overall BCI – three have been stable and relatively unchanged: costs, investment and recruitment.

Finally, the BCI includes an index recording the sample's relative strength in the market. In December 2016, the sample, mostly comprising the companies of CKGSB alumni, registered 72.2. Their competitiveness is consistently higher than the average (50 points) for their respective industries, so it is worth remembering that average companies will be experiencing worse prospects overall.

Launched in June 2011 under the direction of CKGSB Economics Professor Li Wei, the CKGSB Case Center and the Center for Economic Research initiated a project to gauge the business sentiment of executives – the majority of whom are current or former students at CKGSB – about the macro-economic environment in China.

During each survey, respondents are asked to indicate whether certain aspects of their business are expected to increase, remain unchanged, or decrease over the forthcoming six months as compared to the same time period last year. The diffusion index is calculated by summing the percentage of "increase" responses and half of the "remain unchanged" responses.

At a time when credible data on China is increasingly hard to come by, these results from China's leading independent business school, CKGSB, provide timely and reliable facts, as well as objective analysis on the Chinese economy.

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