Commentary
None of the latest data released from China were good. Inflation was higher than expected while all other quantity growth rates were lower than expected or declining, arousing the worry of stagflation. Stagflation is by definition a higher price (growth) with a lower quantity (growth), and is highly likely a result of a leftward shift of the supply curve. Since the bad numbers happened under COVID lockdown, most analytics would attribute the former to supply bottlenecks, as the Federal Reserve labeled the uncontrolled inflation problem. But in fact, it is not the case.
While in the United States, demand is still very strong regardless, be it in goods, housing, or the labour market. The problem is only inflation without stagnation. In China however, inflation remains very low by any emerging market standard (a more usual inflation target is 4 percent), despite that in the rest of the world it has been edging up for more than a year. The failure of inflation pickup during observable weak quantity growth suggests China is undergoing a negative demand shock. Even though negative supply shock cannot be ruled out, and the former is more than enough to offset the latter….