How China’s coronavirus recovery could help ease US inflation fears

Much of the explanation for higher inflation in China and the US can be found in the broader economic impact of the pandemic

If price rises in China are on the cusp of peaking, the inflationary heat that is building in other major economies could dissipate

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Shipping containers are unloaded from vessels at a terminal in the Port of Long Beach-Port of Los Angeles complex in Los Angeles on April 7. Photo: Reuters

UK-based Neal Kimberley has been active in the financial markets since 1985.

Published: 3:30am, 19 May 2021Updated: 3:55am, 19 May 2021

Move along, there is nothing to see here. That sums up the Federal Reserve’s continuing view as the US central bank stays the course with its ultra-accommodative monetary policy and continues to characterise rising inflation in the United States as transitory. Markets are less relaxed, but perhaps the Fed will get a helping hand from China.

Data released last week showed the headline US consumer price index (CPI) rose 4.2 per cent in April year on year, its largest jump since September 2008. That gain reflected the fact US economic activity was in a coronavirus-related slump 12 months ago.

Even so, it was still eye-catching, especially when looked at in combination with April’s month-on-month headline CPI rise of 0.8 per cent. That in itself was the largest increase since June 2009.

The spike in China’s factory gate prices in April should not be ignored, either. Some in Washington might wish it to be otherwise, but the US continues to have an appetite for goods that are made in China. That being the case, if China’s producer price index (PPI) moves higher, that should feed through into higher US inflation eventually.

America’s continuing appetite for Chinese goods is evident in data from California’s Port of Long Beach, a key entry point for imports from China.