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Breaking: China’s CPI inflation declines to 0.2% YoY in January, vs 0.4% expected

China’s Consumer Price Index (CPI) rose 0.2% in January from a year ago after arriving at an increase of 0.8% in December, the National Bureau of Statistics of China reported on Wednesday. The market consensus was for 0.4% in the reported period.

Chinese CPI inflation arrived at 0.2% MoM in January versus a rise of 0.2% prior, softer than the expectations of 0.3%.

China’s Producer Price Index (PPI) declined 1.4% YoY in January, following a 1.9% fall in December. The data came in better than the market consensus of -1.5%.

Market reaction to China’s CPI, PPI data

At the press time, the AUD/USD pair is up 0.20% on the day to trade at 0.7087.

Australian Dollar Price Today

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the US Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.02%-0.01%-0.23%-0.09%-0.18%-0.07%-0.02%
EUR0.02%0.01%-0.24%-0.07%-0.17%-0.04%0.00%
GBP0.01%-0.01%-0.25%-0.08%-0.18%-0.06%-0.01%
JPY0.23%0.24%0.25%0.16%0.06%0.18%0.24%
CAD0.09%0.07%0.08%-0.16%-0.10%0.02%0.07%
AUD0.18%0.17%0.18%-0.06%0.10%0.12%0.17%
NZD0.07%0.04%0.06%-0.18%-0.02%-0.12%0.05%
CHF0.02%-0.01%0.00%-0.24%-0.07%-0.17%-0.05%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).


This section was published on Tuesday at 23:38 GMT as a preview of China’s CPI, PPI data.

China’s CPI, PPI Overview

The National Bureau of Statistics of China (NBS) will publish its data for January at 01.30 GMT. The Consumer Price Index (CPI) is expected to show a rise of 0.4% YoY in January, compared to 0.8% in December. The Producer Price Index (PPI) is projected to show a decline of 1.5% in January versus a fall of 1.9% prior.

The CPI is a key indicator to measure inflation and changes in purchasing trends. The YoY reading compares prices in the reference month to the same month a year earlier. Meanwhile, the PPI is a measurement of the rate of inflation experienced by producers.

How could the China’s CPI, PPI affect AUD/USD?

AUD/USD trades on a negative note on the day in the lead up to China’s CPI, PPI data. The pair edges lower as markets turn cautious ahead of the delayed US employment report for January that were pushed back due to the recently ended four-day government shutdown.

If data comes in better than expected, it could lift the Australian Dollar (AUD), with the first upside barrier seen at the 0.7100 psychological level. The next resistance level emerges at the January 27, 2023 high of 0.7129. The additional upside filter to watch is the February 2, 2023 high of 0.7158.

To the downside, the February 10 low of 0.7007 will offer some comfort to buyers. Extended losses could see a drop to the February 2 low of 0.6908, followed by the January 23 low of 0.6834.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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