TOKYO – Investors betting that the US Federal Reserve is throttling back on interest rate hikes aren’t paying attention to events in China.
The jump in oil and other key commodity prices already points to a China reopening trade that’s likely only just beginning. In the last month, Xi Jinping’s economy swung suddenly from “zero-Covid” to 100% tolerance, altering the global economic trajectory in epochal ways.
Not least of which is inflation dynamics. The Economist Intelligence Unit’s outlook argues that “stagnation in the US and the eurozone in 2023 will be offset by firmer growth elsewhere, particularly China.”
Even more important, EIU says, “a potential second spike in headline inflation in both the US and the eurozone — which could be driven by another jump in global commodity prices related to the war in Ukraine or China’s economic reopening after the lifting of its zero-Covid policy — could also trigger a more aggressive tightening cycle than we currently expect.”