Australian Dollar Seems Unfazed After Chinese Inflation
Post Chinese inflation, the Australian Dollar did not witness any changes against the US Dollar, and factory gate prices for August were released. Chinese economic data significantly influences the Australian dollar due to Australia’s vast amount of commerce with China. Last month, China’s consumer price index (CPI) increased by 0.8 percent, falling short of the 1.0 percent consensus expectation. The producer pricing index (PPI) climbed 9.5 percent, surpassing expectations of a 9.0 percent increase.
According to Chinese authorities, the fast rise in prices is a threat to economic growth. Many commodity prices hit near-record highs earlier this year due to the pandemic, which affected supply, mining, farming delays, and railhead closures. However, a fresh surge of Covid cases fueled by the Delta variety has lowered economic growth expectations, causing some price froth to subside. It has increased the pressure on Chinese authorities, who had taken measures earlier in the year to combat the skyrocketing prices of commodities such as iron ore and copper, which are critical to China’s recovery.
When China announced a better trade balance this week, a drop in bets about Beijing taking action to provide more economic support dropped. CPI figure will chill such chances even more. PPIs that are higher than predicted are likely to keep Chinese authorities on their toes. According to analysts, the People’s Bank of China (PBOC) is split on whether it would lower the Reserve Requirement Ratio (RRR) this month. A move like this would add liquidity to China’s banking system. The RRR was last reduced by the PBOC in July.
The divergence in inflation and gate prices of the factory growth paths compared to their respective projections implies that manufacturers are deferring cost pass-through to consumers. It is most likely due to the belief that factories witness their input costs as transitory and tolerate increased prices within their profit margins.
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