The Chinese are not like Americans.
That’s obvious on so many levels, but Asia Unhedged wants to focus your attention to consumption, and especially conspicuous consumption.
Basically, Americans are willing to piss away their money on almost anything. They’re even willing to go into debt to get something they really, really want.
The Chinese not so much. They’re much more careful with their money. With no government safety net, if you want a retirement or health care you better save up the money to pay for it. So, they’re much less likely to buy a new car every three years, or a bunch of frivolous stuff.
Which means when you transition from a government-based economy to a consumer-based economy, it’s already a bumpy road. But if the consumers are traditionally not big spenders, it’s that much bumpier.
All of which is Asia Unhedged’s way of saying the Chinese economy, in particular consumer inflation and producer prices, continues to slow down.
China’s consumer price index (CPI) posted an annual growth rate of 1.6% in September, the National Bureau of Statistics (NBS) said Wednesday. It was a significant drop from the 2% in August and expectations of 1.8%. The non-food CPI was even milder, up 1.0% from the year-ago September.
Meanwhile, weak demand from thrifty consumers is forcing manufacturers to cut prices. This sent the producer price index lower for the 43rd consecutive month. The September PPI sank 5.9% year over year, matching expectations and the August decline, which was the biggest drop since the depths of the global financial crisis in 2009, according to Reuters.
“Overall, the still weak PPI highlights the severe overcapacity problem and sluggish domestic investment demand,” economists at Nomura told Reuters.
“Given the lackluster growth outlook, we continue to expect moderate fiscal stimulus from the central government and continued monetary easing.”
Nomura expects one more cut to banks’ reserve requirement ratio (RRR) late this year and another four in 2016, each by 50 basis points, together with two more interest rate cuts of 25 basis point each next year, reporter Reuters. A basis point is 0.01 percentage point.