China's inflation problem

Producer and consumer prices are diverging - which could spark trouble in the future.

China’s economic data have long been looked upon with a hint of suspicion. Inflation data is considered to be one of the better economic indicators produced by the China’s National Bureau of Statistics, however, recent outcomes have raised some questions. The producer price index (PPI) is considered to be a relatively reliable leading indicator of the consumer price index (CPI), as upstream price pressures, including the effect of higher commodity prices and raw materials, eventually trickle down and feed through to consumer prices. History has shown that it is broadly the case for China, with the CPI and PPI moving roughly in line with each other.

However, comparing the recent inflation outcomes at the consumer and producer level suggest a wide divergence in price pressures: rising consumer prices and falling producer prices in annual terms. The PPI has trended sharply downwards over the past year, down in deflationary territory for two consecutive months in April, while consumer prices have moderated more slowly. Growth in the CPI was 3.4 per cent in April 2012, moderating from a high of 6.5 per cent in July 2011, while the PPI which measures the selling price of goods and services sold at the wholesale level fell by 0.3 per cent in annual terms down from 7.5 per cent annual growth.

To some extent, the large recent falls in the PPI relates to a base effect; previously strong monthly increases in the index in late 2010 to early 2011 would reduce the magnitude of change in the index this year. But looking at the index rather than the growth, producer prices have also been subject to deflationary pressure in monthly terms – causing the index to fall slightly in late 2011, before more recently picking up.

The moderation in the PPI also reflects slackness in the manufacturing industry, where prices in the sector have fallen in annual terms for four consecutive months to be lower by 2.2 per cent in April 2012 compared to a year ago. This is in line with the continued moderating trend in industrial production, down to below 10 per cent annual growth in April – representing the weakest growth since the 2008-09 slowdown. Meanwhile, consumer prices have been driven largely by high food prices, which accounts for around one-third of the consumer basket.

The divergence between consumer and producer prices also highlights different operating conditions for upstream and downstream manufactures. Input prices have risen significantly, suggesting that profit margins for upstream manufacturers are taking a hit. Commodity prices have remained elevated; wage pressures have intensified with minimum wages rising by around 20 per cent annually in many provinces, while exchange rate appreciation has also cut into manufacturer’s profit. Anecdotes suggest that many exporters are declining large overseas orders, given the lack of skilled workers, tight credit conditions stemming from the government’s ‘prudent monetary policy’ and uncertainty over the pace of renminbi appreciation.

On the other hand, however, downstream manufacturers, which are less vulnerable to higher input prices, appear to be experiencing an improvement in their profit margins due to the positive gap between consumer and producer price inflation. Looking at reported profits across industries, consumer-related sectors appear to be best performers. In the three months to March, profits of automobile manufacturers increased by 6.3 per cent annually, while profits in the sectors of raw chemical and chemical products fell by 23.1 per cent and even further for ferrous metal mining and processing (down 83.5 per cent).

Looking ahead, it is expected that the gap between producer and consumer prices will eventually close in the coming months on the back of an improvement in manufacturing demand and possible relaxation of government credit restrictions. As per the government’s inflation target, consumer price inflation is set to average 4 per cent in 2012, which would mean relatively strong monthly growth of around 0.4 per cent over the remainder of this year. Should this be achieved, producer prices will need to rise at a much faster pace in accordance with the consumer and producer price relationship.

Until the figures get back on track, it is not unreasonable to expect the concerns felt in many countries about the accuracy of inflation numbers might well spread to China. Trying to get representative prices for a basket of goods that reflects the experiences of the majority is increasingly hard in complex economies prompting many to question the accuracy of one of the most important economic variables.

Chinese workers assemble electronics. Photograph: Getty Images

Niloofar Rafiei is China economist at Timetric, provider of economic data visualisation and analysis.

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Did Titantic do more for climate change than Leonardo DiCaprio’s new documentary?

Sex, icebergs and individual plight: the actor’s earlier outing teaches us more about vast disasters than his new docufilm about global warming’s impact, Before the Flood.

“Now you know there was a man named Jack Dawson and that he saved me . . . in every way that a person can be saved.” Or did he? For Titanic actor Leonardo DiCaprio, there is one way in which Jack never did rescue Rose: from the threat of climate catastrophe. 

Over the last 15 years, DiCaprio has made the issue a personal mission. Yet even in his role as UN climate ambassador, he stills feels far from heroic:

“If the UN really knew how I feel, how pessimistic I am about our future . . . I mean to be honest, they may have picked the wrong guy.”

So begins his new documentary, Before the Flood. A quest for answers on climate change, the film sees Leo racing around the world, marvelling at the sound of endangered whales, despairing at the destruction caused by tar-sands – “it looks like Mordor” – and interviewing a series of concerned experts, from professors to Barack Obama to the Pope.

There are plenty of naysayers to stand in his way and put him down. “Who better to educate world leaders on made-up climate change and a crisis that doesn't exist, than an actor with zero years of scientific training?” mocks one commentator from Fox News.

But if DiCaprio can gather enough evidence to believe in himself – AND believe that there are viable solutions out there – then so can we. Or so the story arc promises. His journey thus stands as a guide for our own; a self-education that will lead to salvation for all. 

It's all a little messianic. The film is even named after a biblical painting. And will those who don't already know who DiCaprio is even care? 

The sad fact is that, while DiCaprio’s lasting popularity still owes so much Titanic, the 1997 box-office smash that made his name, his new documentary fails to recapture the dramatic wisdom that put him there. It doesn’t even quip about the icebergs.

This is an oversight. Titanic didn’t win 11 academy awards for nothing. As well as a must-see rite of passage (pun intended) and soundtrack for infinite school discos, it taught me something invaluable about storytelling. Though I was not initially a DiCaprio fan, over the years I’ve come to accept that my lasting love of the film is inseparable from my emotional investment in Leo, or at least in his character, Jack. What Titanic showed so brilliantly was that the fastest way to empathise with suffering on a vast scale – be it a sinking ship or a sinking planet – is to learn to care for the fate of one or two individuals involved.

Every part of Jack and Rose's story is thus intimately linked with the story of the ship. Even that famed sex scene gains its erotic force not from the characters alone, but from their race through the blazing engine room (situated as it is between the foreplay of the naked portrait and the famous post-coital ending in the back of the cab).

And such carefully crafted storytelling isn't only essential to great entertainment but to great activism too. It can literally inspire action – as evidenced by fans’ desperate attempts to prove that both Jack and Rose could have climbed to safety aboard the floating piece of wood.

So would Before the Flood have been better if it had been a little bit more like Titanic and less like An Inconvenient Truth? Yes. And does that mean we should make climate films about epic polar bear love stories instead? Not exactly. 

There are many powerful documentaries out there that make you emotionally invested in the lives of those experiencing the consequences of our indirect (fossil fuel-burning) actions. Take Virunga, a heart-wrenching insight into the struggle of those protecting eastern Congo’s national park.

Sadly, Before the Flood is not one of them. Its examples of climate change – from Beijing air pollution to coral reef destruction – are over-familiar and under-explored. Instead of interviewing a Chinese official with a graph on his iPad, I would have preferred visiting a solar-panel factory worker and meeting their family, who are perhaps suffering from the effects of the smog in a way I can't yet imagine.

If you want a whistlestop tour of all things climate change then this necessary and urgent film is the movie for you. But those hoping it will give new depth to climate activism will be disappointed.

DiCaprio's distant relationship with the effects of climate change leave him stranded at the level of a narrator. He makes for a great elderly Rose, but we need a Jack.

Before The Flood is in limited theatres from 21 October and will be shown on National Geographic on Sunday 30 October.

India Bourke is an environment writer and editorial assistant at the New Statesman.