The Day at a Glance | December 9 2022

The Top

*Inflation in China remained low in November (1.6% annual).

*Inflation for producers decreased less than expected in the United States (7.4% annual; 0.3% monthly), a sign of persistent inflation.

*China and Saudi Arabia reaffirm the importance of a stable oil market.

*The United States is heading towards a shallow recession; interest rates are expected to increase more: Reuters survey.

Economic environment

Low inflation in China. Inflation in China remained slow in November by decreasing to 1.6% annual (general) and 0.6% annual at an underlying level. The decrease set in line with analysts` estimates and was accompanied by inflation for producers, which receded (-) 1.3% annually in November. Both sets of figures confirmed that the most recent COVID-19 outbreaks in China have suppressed demand and kept inflationary pressures very low, while input cost pressures have practically disappeared for producers, and deflation was logged for a second consecutive month. Weakness in China`s economy has turned into the main point to focus on for authorities, who have started to ease restrictions to contain the virus and boost economic activity. Simultaneously, low inflation levels keeps the door open for the implementation of expansionary monetary and fiscal stimulus that would back a robust economic recovery. Analysts expect to see cuts in capital requirement rates for the banking sector starting in March – as well as in the reference rate for 1 and 5-year preferential loans, and in the central bank`s required credit facilities. Greater monetary stimulus is expected along with the economy`s reopening, which will help boost growth and inflation in China during 2023; even though the road may not be easy since the economic reopening and the easing of COVID restrictions could increase the frequency in the virus`s outbreaks.

Inflation for producers in the United States remains high.Inflation for producers in the United States surprised markets by logging a slower than expected decrease at both general and underlying levels, pointing out that inflationary pressures are more persistent than expected. Month to month, producer prices increased 0.3% (vs 0.2%e.) and set at 7.4% annual (vs 7.2%e.). Despite a contraction in energy prices, food and service prices led the upwards surprise in inflation. There was also a surprise at a core level, after a 0.4% monthly (vs 0.2%e.) and 6.2% annual figure was recorded. The data is one of the last key figures for the FED to consider before it makes its monetary policy decision next week (December 14th). A day before the decision is made (December 13th), consumer inflation figures will be revealed.

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