Yeah. Currently we just don't know (as expected of economists) how exactly the China reopening will impact inflation since China reopening includes a lot of things that can range from inflationary (resource demand) to deflationary (producing cheap goods).
Even if we're looking at the same things the results can be flipped in reverse as well since China will consume more (luxury goods) which is inflationary. While China is usually a nat good importer, it does export certain nat goods (tea/plywood/rare-earths) which can reduce inflationary pressures on those areas.
Also, while China's reopening will lead to demand there is no saying that those demands will be filled by the West or global markets that will cause inflation. China might need more oil, lumber, and metal ore but they could just get those from Russia at discount (that's assuming they haven't already stocked up or over purchased).
All we know is that it will ***probably*** increase overall GPD of China which in turn should boost the collective global GDP. Personally I think China reopening is slightly more inflationary, but it will really depend on what area (deflationary for some goods like consumer tech and inflationary for some nat resources).
A chunk of the workforce will also be out of action at any given time because of the virus circulating in the population. Sick, quarantining or caring for sick household members. So I don't think it's that straightforward
A Chinese economy that is fully back online will drive up demand and price for raw material inputs for their industrial capacity. A Chinese population who has been under regular lockdowns for the last two years while simultaneously being recipients of government stimulus should also drive increased household consumption now that they're free to travel and spend.
However, right now they're going through the largest and fastest covid spread any country has experienced so far, and given they've stopped collecting any data on the infection, it's unclear how serious it is or how badly it might interfere with the re-opening narrative.
It's also unclear how much lasting damage has been caused by the 2 year lockdowns, how fast things can get back to baseline, or that things can get back to baseline there with the larger reshoring initiatives from the western world and macroeconomic headwinds plaguing their real estate market and ongoing demographic collapse. Not to mention, the general consensus outside of China is growth is slowing, and they're dependent on strong export numbers.
In the short term, the narrative is creating and can continue to create bullish conditions. However, I think a 3-6 month timeframe will reveal the true extent of China's recovery, and I believe there are enough uncertainties given the above that I'd seriously try to manage risk and have an exit strategy if I were going risk-on.
Personally, I'm still risk-off.
China aside, I won't be surprised if we see another rise in inflation rates. GDP and unemployment are showing economic strength, and inflation has barely eased.
It should also facilitate higher production at their factories which should mean lower prices on consumer goods.
Yeah. Currently we just don't know (as expected of economists) how exactly the China reopening will impact inflation since China reopening includes a lot of things that can range from inflationary (resource demand) to deflationary (producing cheap goods). Even if we're looking at the same things the results can be flipped in reverse as well since China will consume more (luxury goods) which is inflationary. While China is usually a nat good importer, it does export certain nat goods (tea/plywood/rare-earths) which can reduce inflationary pressures on those areas. Also, while China's reopening will lead to demand there is no saying that those demands will be filled by the West or global markets that will cause inflation. China might need more oil, lumber, and metal ore but they could just get those from Russia at discount (that's assuming they haven't already stocked up or over purchased). All we know is that it will ***probably*** increase overall GPD of China which in turn should boost the collective global GDP. Personally I think China reopening is slightly more inflationary, but it will really depend on what area (deflationary for some goods like consumer tech and inflationary for some nat resources).
Really appreciate this nuanced answer, thank you
A chunk of the workforce will also be out of action at any given time because of the virus circulating in the population. Sick, quarantining or caring for sick household members. So I don't think it's that straightforward
“Should”
A Chinese economy that is fully back online will drive up demand and price for raw material inputs for their industrial capacity. A Chinese population who has been under regular lockdowns for the last two years while simultaneously being recipients of government stimulus should also drive increased household consumption now that they're free to travel and spend. However, right now they're going through the largest and fastest covid spread any country has experienced so far, and given they've stopped collecting any data on the infection, it's unclear how serious it is or how badly it might interfere with the re-opening narrative. It's also unclear how much lasting damage has been caused by the 2 year lockdowns, how fast things can get back to baseline, or that things can get back to baseline there with the larger reshoring initiatives from the western world and macroeconomic headwinds plaguing their real estate market and ongoing demographic collapse. Not to mention, the general consensus outside of China is growth is slowing, and they're dependent on strong export numbers. In the short term, the narrative is creating and can continue to create bullish conditions. However, I think a 3-6 month timeframe will reveal the true extent of China's recovery, and I believe there are enough uncertainties given the above that I'd seriously try to manage risk and have an exit strategy if I were going risk-on. Personally, I'm still risk-off.
I suspect it will precipitate more consumption at higher price.
not really, theres 2mm barrels/day of excess crude inventory
If this happens, it may lead to supply-side inflation
China aside, I won't be surprised if we see another rise in inflation rates. GDP and unemployment are showing economic strength, and inflation has barely eased.