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Zdjęcie autoraJarosław Jamka

Subjective market review (8-Feb-2024)

Today we got the Chinese inflation for January 2024.


The headline inflation, or rather deflation, dropped to -0.8% year on year (the market expected -0.5%). The highest inflation level in the post-Covid period was 2.80% (September 2022). On a monthly basis, prices rose +0.3% in January (expected +0.4%). Figure 1 shows headline inflation comparisons for major countries.



In the case of China's core inflation, we have a reading of 0.4% year on year. Figure 2 shows a comparison of core inflation for the major countries.



For January 2024, we are only missing inflation in the US, which will be published on February 13, 2024, but earlier, on Friday, February 9, we will get the revision of inflation data, which may be at least as important as the reading for January itself.


FOMC members (Waller and Powell) have recently been paying attention to this revision in terms of the decision on the upcoming first rate cut. Last year's revision resulted in a decrease in inflation in H1 and an increase in H2.


The Cleveland FED inflation nowcast currently shows US inflation in January at a headline level of 2.95% (down from 3.35% in December 2023) and core at 3.81% (down from 3.90% in December 2023).


Figure 3 also shows PPI inflation in China (today's reading for January 2024 is -2.50% YoY) against the background of American CPI inflation. The correlation between these series is 60.1%, which is better visually shown in Figure 4 (series on separate axes). Historically, this correlation was even over 80%, but from 2022 we have some decoupling of these series, what lowered the correlation calculated for the period from 2006 to 2023.



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