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China Exports Most Deflation To The US Since The Financial Crisis

Tyler Durden's picture




 

Today's import price index report from the BLS showed a modest improvement at the headline level: declining by 0.40% this was half the expected decline of -0.80% and a modest pick up from last month's -0.50%. A big reason for this continues to be oil, which saw a -2.5% drop in November after a 0.1% increase the prior month, with import prices for non-fuel products down -0.2%, the highest since June.

Annually, the pace of declines also picked up modestly dropping "only" -9.4% from a year ago, higher than the -10.50% slide in October. Import prices have now seen an annual decline for 16 consecutive months starting in July 2014.


Some more details from the report:

Fuel Imports: Fuel prices resumed a downward trend in November, declining 2.5 percent following a 0.1-percent uptick the previous month. The price index for import fuel decreased 24.9 percent between June and September. A 2.5-percent drop in petroleum prices and a 4.6-percent decline in natural gas prices both contributed to the November decline in overall import fuel prices. Prices for overall fuel fell 43.2 percent over the past 12 months, after decreasing 15.9 percent between November 2013 and November 2014. Petroleum prices declined 44.5 percent over the past year, while prices for natural gas fell 32.3 percent. 

 

All Imports Excluding Fuel: The price index for nonfuel imports also decreased in November, falling 0.2 percent following 0.3-percent declines in each of the previous 4 months. Lower prices for nonfuel industrial supplies and materials; foods, feeds, and beverages; capital goods; and automotive vehicles all factored into the November decline in nonfuel import prices. Prices for nonfuel imports decreased 3.2 percent for the year ended in November. Prices for nonfuel industrial supplies and materials; foods, feeds, and beverages; and each of the major finished goods categories all fell over the past 12 months.         

And while the headline figure suggested there is some hope that import prices will improve at the headline level in the coming months, something else has emerged which suggests that the real importing of others' deflation is only just starting. Or rather, someone else.

China.

Here are the details from the report:

Prices for imports from China declined 0.3 percent in November, matching  a 0.3-percent decrease in May. Those were the largest monthly drops since the index fell 0.6 percent in May  2013. Import prices from China decreased 1.5 percent over the past 12 months, the largest year-over-year drop since the index declined 1.7 percent for the year ended in January 2010.

This means that China just exported the most deflation to the US since the financial crisis!

So if China's intention was to join Japan and Europe in exporting its deflation to the US, despite the CNY peg to the USD, it has succeeded as shown below.

 

What is going on here? Simple: with all of its domestic markets fully saturated, China has had no choice but to export its soaring commodity production as we explained in "Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities." This is how Bloomberg qualified the problem:

Shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs.

 

That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

 

The flood is compounding a worldwide surplus of commodities that’s driven returns from raw materials to the lowest since 1999, threatening producers from India to Pennsylvania and aggravating trade disputes. While companies such as India’s JSW Steel Ltd. decry cheap exports as unfair, China says the overcapacity is a global problem.

 

The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.

 

Low-cost supply from China in Europe prompted producer ArcelorMittal to reduce its profit forecast and suspend its dividend. India’s government has signaled it’s planning more curbs on steel imports while regulators in the U.S. are planning to lift levies on shipments from some Chinese companies.

And judging by the relentless surge in exports of Chinese commodities, China's deflationary wave not only to the US, but the entire world, is only just starting.

So unless the Fed is ready to devalue its own currency, get ready for wholesale inflation to tumble as the US is on deck to import near record amounts of Chinese deflation in the coming months and years, especially if China continues to devalue its currency, either stealthily or not so stealthily as it did in August and as many expect it will do again in the coming months.

 

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Thu, 12/10/2015 - 09:54 | 6903773 madcows
madcows's picture

Yeah, I'm not sure I'm seeing this Price Drop near me.

Shit's still ridiculously expensive.

Thu, 12/10/2015 - 10:16 | 6903869 Osmium
Osmium's picture

Propane and gasoline are lower.  Everything else, not so much.

Thu, 12/10/2015 - 10:23 | 6903911 madcows
madcows's picture

Yup.  And those don't come from China.

the kids clothes do, and they are more expensive than ever.  It costs a fortune to clothe the kids.  They grow out of everything in a few months.  And we don't shop at the name brand retailers.  None of that mall shopping crap.  This is all marshalls and TJ Maxx crap.  Shit's expensive.

hell, that doesn't include healthcare and food.  Which are skyrocketing, but pretty much all "american" made.  Fucking healthcare cartel.

Thu, 12/10/2015 - 10:29 | 6903932 tarsubil
tarsubil's picture

Hey, the suits gotta get paid. Little Billy and Sue are just going to have to take one for the team.

Thu, 12/10/2015 - 12:00 | 6904378 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Yeah! We can see price drops after everyone loses their job and is completely broke. 

Thu, 12/10/2015 - 12:12 | 6904448 mtndds
mtndds's picture

When I see housing prices take a shit then I know things are becoming real.  Until then its party on!!!

Thu, 12/10/2015 - 10:40 | 6903981 firstdivision
firstdivision's picture

The clothes are cheaper from the supplier, just you're paying some US schmuks Porsche lease.

Thu, 12/10/2015 - 15:44 | 6906045 shovel ready
shovel ready's picture

@madcows

re: 'expensive kids clothes'

i live is Aust. we have 2 boys (4,5). we opp shop (opportunity shop) all our boys clothes. we spend maybe $40 or $50 a year for both boys. it is all high quality stuff, about half of it are 'designer labels'. their dressers are absolutely full of clothes, jumpers, jackets, hats etc etc.

the trick is to start looking a year ahead. we just drop in fortnightly on our way to somewhere else, takes about 5-10 mins to scan for bargains for all of us.

my wife and i are both white collar professionals - so people probably just assume we are paying top dollar - our boys most certainly do not look like something from a charles dicken's novel.

most of my clothes have come from opp shops - including my armani, zegna, and hugo boss suits (that are in perfect condition and fit me perfectly)

there is a bit of an art to it. the trick is to learn the character of an opp shop. they are all different. some will price books and children's clothese at 5c each. some will charge near new prices. some will put $1-2 on all tools, others will charge near new prices etc

hope this helps. cheers

Thu, 12/10/2015 - 09:56 | 6903781 Dr. Engali
Dr. Engali's picture

Yay moar cheap Chinese trinkets! Moar, moar, moar!

Thu, 12/10/2015 - 10:52 | 6903954 silverer
silverer's picture

Cheap!  Can't even ship a small and empty envelope to China for this price.  It's nuts!

Check this out on eBay, just dump item number below into the eBay search window.  How can they even do it?  Free shipping and no tax!  WTF?

381401474031

Thu, 12/10/2015 - 10:57 | 6904055 Dr. Engali
Dr. Engali's picture

Don't ask me how they do it. They must be heavily subsidized is all I can figure. And people wonder why we can't compete.

Thu, 12/10/2015 - 11:59 | 6904374 Chairman
Chairman's picture

The cost is $.78 to ship this watch from China to the USA.  It would seem that Soki may have gone out of business and this is a build up of all of the excess parts inventory as they do not have the Soki name on the watch face so they are surplus.

Thu, 12/10/2015 - 09:58 | 6903785 GartmansTaint
GartmansTaint's picture

What the fuck is defration Takashi?

Thu, 12/10/2015 - 09:59 | 6903794 JustObserving
JustObserving's picture

And Obama's war on oil to hurt Russia exports deflation to the entire world.  Oil production is 94 million barrels a day and oil has dropped over $80 a barrel.  That works out to a $2.75 trillion cut in oil revenues.  That is a massive cut to global GDP of about $70 trillion.

 

Thu, 12/10/2015 - 13:14 | 6904922 tarabel
tarabel's picture

 

 

Correction:

It is a massive redistribution of wealth away from the petro-kleptocracies accustomed to a steady flow of money that buys domestic peace at home and back to the people abroad that have been mercilessly plundered for decades.

These oligarchs have had no problem inflicting pain at the pump on others but they sure don't seem to like it much when it comes to their house.

Thu, 12/10/2015 - 10:05 | 6903820 CHoward
CHoward's picture

How's the price on those cute little brightly colored lawn gnomes?  Can never have too many of those.

Thu, 12/10/2015 - 10:08 | 6903831 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Pssst, I got some deflation for sale.

Thu, 12/10/2015 - 10:22 | 6903907 Government need...
Government needs you to pay taxes's picture

Selling stuff nobody wants to people who pretend they can afford to pay for it.  If this is a taste of the global NEW WORLD ORDER, sign me up!

Thu, 12/10/2015 - 10:23 | 6903912 surf0766
surf0766's picture

Bubba Trump says we never win at deflation. He will make deflation great again. It will be huge deflation

Thu, 12/10/2015 - 10:28 | 6903928 silverer
silverer's picture

But car manufacturing using these cheaper commodities?  A lower price to the consumer?  Nope.  They just pocket the profits.

Thu, 12/10/2015 - 10:39 | 6903977 I AM SULLY
I AM SULLY's picture

Cheap, but functional, hand-held crossbows from China?

(this is great news for innner city kids)

(especially if there is a "gun ban")

https://www.youtube.com/watch?v=EC0sn7JmrY8

Thu, 12/10/2015 - 10:30 | 6903939 I AM SULLY
I AM SULLY's picture

$14.00 fiberglass crossbow that actually works ... (and it was made in china)

You could probably shoot large diameter cooking skewers out of it, the ones you can buy at MARSH.

https://www.youtube.com/watch?v=EC0sn7JmrY8

Thu, 12/10/2015 - 10:40 | 6903983 Luther van Theses
Luther van Theses's picture

Classic capitalist overproduction

Thu, 12/10/2015 - 11:26 | 6904182 Ghordius
Ghordius's picture

classic Austrian School malinvestment paired with classic currency war and classic Big Biz market share war

Thu, 12/10/2015 - 11:26 | 6904186 jeff forsythe
jeff forsythe's picture

Once again the media has published an article suggesting that Red China is just another normal country that is involved in science and finance and cares about air pollution and fixing the terrorist problem in the World. The media might try telling us the facts concerning the blood-thirsty CCP.  The heinous Chinese Communist Party's only concern is the total control of its people by the use of torture, slavery, organ harvesting and murder. Since 1949, the blood-thirsty CCP has murdered eighty million of its own people and is now attempting the genocide of the millions of innocent Falun Gong practitioners who live there. None of the millions of atrocities that have been and are still being committed are ever mentioned by the media because of corporate greed so the people of the World look at China as a budding financial power when in fact it is a dark, scary, brutal regime. Human greed, insatiable.

Thu, 12/10/2015 - 13:23 | 6904972 tarabel
tarabel's picture

 

 

As usual, the professional know-it-alls are attempting  to cloak simple concepts in arcane technospeak that makes them sounds like wise wizards whose services are indispensible.

What is happening in China? Very simple. Companies are desperate for cash flow to service their debts. They are shoving every saleable asset out the door at any price that can be had in order to generate enough money to pay the credit card for another month. No matter how harmful it may be to their own ultimate prospects. They can borrow no more (where have we heard that before) and need cash, cash, cash. Right now.

If they can stay alive for one more month, that gets them 30 days closer to the time when things turn around. Or so they hope. 

Welcome to the world, Chang.

Thu, 12/10/2015 - 14:20 | 6905412 Starkman
Starkman's picture

So, who's buying all this Chinese surpluss if, in fact, it's not needed?

How is the Chinese machine exporting if there's no demand (translate: buyers)?

Doesn't make sense that the Chinese can export to a market that doesn't need it.

Thu, 12/10/2015 - 19:12 | 6907158 Flatchestynerdette
Flatchestynerdette's picture

If its really bad in China and they've sold 80billion in reserves to keep up the charade and that money has been transferred to Mr. and Mrs. Lo Pan - they're buying up property in the USA making life miserable for the rest of us.

Thu, 12/10/2015 - 17:36 | 6906774 Maestro Maestro
Maestro Maestro's picture

Chinese are stupid morons.

If you wanna give stuff away for free by sending your goods to the US in return for unlawful and worthless dollars

why

don't you

just keep

it

and use it yourself

Instead of publicly making a fool out of yourself by shipping your stuff to the Americans for free.

Wait

it's because

The Chinese are the slaves of

The American bankers.

SDRs = lies

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