Chart Of The Day: Schrödinger (Dis)Inflation

Tyler Durden's picture

As reported on Wednesday night, China's economy is contracting faster than anyone expected. As further reported last night, China loan creation at 540.1 billion yuan was far below economist estimates of 700 billion. In other words: the world's marginal economy is starting to crack. So the PBOC has no choice but to ease right? Wrong. As we showed yesterday, the Chinese central bank has one mandate above all: food price stability, or else suffer the consequences of "1+ billion people instability." And as the USDA report just confirmed, Soybean is going nowhere but up. Which in turn means Chinese food inflation, which makes up 30% of the headline CPI (unlike America's 7.8%) is set to follow. Still hoping and praying that the PBOC will ease even as the deep fried black swan we warned about 2 weeks ago is rapidly flapping its wings toward Beijing? Hope and pray harder.

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Gromit's picture

 Mike Pettis has been on record predicting chinese growth to reduce sharply.

He's been writing about this for some time now, he projects +- 2% over the next ten years.

silverdragon's picture

Maybe its time for China to take its foot of the brakes, just a little.

AU5K's picture

China is screwed in the long run.  4-2-1.

BlowsAgainsttheEmpire's picture

They can always build a few more empty cities.

LeisureSmith's picture

And then nuke them as a Supersized version of the Broken Window Fallacy.. Krugman would approve.

silverdragon's picture

Isn't Pettis an English teacher in China?

Why anyone would listen to an idiot academic like Pettis is just plain confusing.

BlowsAgainsttheEmpire's picture

He's a professor of finance at the Guanghua School of Management at Peking University.  Perhaps you're confused.

Meesohaawnee's picture

if  i have to see that gay vid on manu/blowhorn one more time im gonna puke. mommy make  it stop ..not that anyone ever suspected the blowhorn as being just a info mercial. how much do they get each time they run that ??

Sutton's picture

Change the composition of Chinese CPI!

problem solved

Dumb goyim


scatterbrains's picture

It seems when ever the PPT steps in Gold sees it right away.

monopoly's picture

And what is up with gold just now?

scatterbrains's picture

Did the ppt step in to hold that short term support line in /es ? If gold spiked because the ppt scrambled to support /es even in this small way (causing gold to ramp like that) then somebody is close enough to these crooks that any outright print fest will be telegraph via gold to be sure. The way I see it if 1394  slips away then 1350ish comes quickly. So I wouldn't be surprised that they are in the pumping that line.

RussellB's picture

China's actually been stockpiling pork to keep prices from falling further this year. Pork makes up a sizable amount of their CPI and last year while inflation was high they were importing U.S. pork like mad-actually not just pork but sows as well. So their herd increased substantially in the past year-now they have ample supply for the time being which in addition to a relatively stable grain crop may slow the above effect. (Not saying food inflation won't hit, just maybe not as pronounced as believed)


Seer's picture

I think that there's no escaping the inevitable decrease in affordability.  More pigs also means more feed.  And, as we can see, in an environment in which supply is failing this is going to OUCH.

I'm kind of glad that I didn't start raising pigs this year as I'd wanted: I'd been hesitating over this very thing- fear of rising feed prices.

ConspiraciesRus's picture

Good observation... makes a lot of sense and will certainly skew the charts a bit.

watmann's picture

Not so fast. The Government reproted that corn will be off by 45% this AM. However this 45% is off of a original forecst of 14.5 billion bushels. Last years production was in the range of 12.5 billion bushles. so it seems the real reduction will be around 20%. yet the prices of corn have nearly doubled. When i listen to these reports I get the sense that these are contrived numbers meant to push the trading price up of corn way past reality for now. I dont know how to bet the downside of this but I see this move as amove to "screw" the Chineese (as they do us) and grab a lot of money by the US pit traders.

Dr. Engali's picture

Inflation...pffffft .....Nothing a little hedonic regression won't take care of. Substitute instant rice for wild rice ....Poof no more inflation.

BandGap's picture

China has quite a few problems. Besides not being able to grow enough food to feed their massive population, the groundwater in China is horrible. Do not take this lightly, and it does factor into growing food. Simply put, the Chinese expansion has drained their potable water supplies. And a lot of what is available is polluted.  There are reports of wells being drilled that are over 600' deep just to get to drinkable water.

Don't ever eat fish from China or Vietnam unless you enjoy internally sequestering heavy metals.

My bet is that WW3 starts in SE Asia. There are 25,000,000 more men than women in China.  Something has to give.

Seer's picture

But you know that if the damn environmentalists there would get out of the way business would be able to take care of all those water problems! </sarc>

Food, Shelter and Water.

Yes, war (which is ALWAYS about/over resources) is inevitable.

FRBNYrCROOKS's picture

WTF? What about inflation here? I went to buy a pint of beef brisket yesterday, a fucking pint cost $16??????? I had to downgrade to pork!!! I am going to the grocery store for the herd culling. Prices should halve for a month until the culled beef moves out of inventory. Meat prices are doing to double. Bernanke will still insist their is no inflation. He is such a dip shit. 

rosiescenario's picture

However the food is priced, the reality is that the % of a Chinese person's income to be devoted to food just went up....just as it is doing here, but here we started from a far smaller starting %.


Time to end the idiotic corn to ethanol program that was another 'special interest group' fiasco. More energy goes in than comes out....besides the gas guzzlers, we also have the soda guzzlers accounting from a wasteful use of corn that is converted to high fructose syrup, which, in turn, is converted to obesity, diabetes, and general healthcare issues....


Mexico is going to be impacted more by our corn shortage than anyone else. Haven't seen much press on that issue, yet, but we will as political unrest is fueled there.

Seer's picture

Yes, it's about AFFORDABILITY!  Thank you for reinforcing this via the use of the word "percentage."

Along this same theme, "gas guzzler" should have the same basic treatment.  That is, when we talk about vehicles we should do so using a more meaningful measurement- specify it as People (or cargo) Miles Per Gallon.  A Hummer can beat out a Prius here if it's fully loaded with people and the Prius only has the driver.  Or, it's the case of how much cargo is being hauled: I've got a diesel truck, and its use/function is to move cargo/stuff- if I used it to commute with it would be a true "guzzler."

tip e. canoe's picture

grow your own fuel

added bonus: it's a winter sown crop

Seer's picture

"grow your own fuel"

That's all fine and dandy as long as it's for YOUR own use.  As soon as you "export" any resultant product off of your property you are operating unsustainably; you'll most likely end up pushing a larger scale, which WILL deplete your soils (requiring importation of elements to re-stock your soils).

The "invasive species" part is a little disconcerting... Refer to Canola ("rapeseed") for similar issues: had "liberals" in my country running around promoting bio-fuels, totally clueless about the fact that behind the scenes there was a push to subsidize farmers for planting Canola; the county north of mine is more heavily in to crops and they have banned Canola there (the REAL farmers know better).

tip e. canoe's picture

seer, note i said "grow YOUR OWN fuel" not "SELL".   don't know about you, but zero-sum games are not my cup of tea any longer.

also note the 1st line, "Camelina needs little water or nitrogen to flourish, it can be grown on marginal agricultural lands. It may be used as a rotation crop for wheat, to increase the health of the soil."  increase not decrease.

i know all about canola and how it contaminates the seed of other brassicas (as well as being a nutrient whore).   from all i can tell, gold-of-pleasure only has an issue with flax, which considering that flax needs more water and nutrients, may not be a bad thing.

seems like it might be a good crop to add to a rotation (it grows well with green manures) or on some fallow land (it develops 3-5 ft taproots to help loosen the soil) as a stopgap until USAInc. stops its insane fascination with prohibiting the farming of that other sativa.

plus, it was found in the stomach of this guy:

plus, it's got a cool name, don't ya think?


orangegeek's picture

Chinese communists have spent the last umpteen years buying up non-ags (oil, gold and the like).


I guess the communist manifesto neglects to mention food.

post turtle saver's picture

Ah yes...

Once again the US holds all the cards that matter. Top corn producer in the world, top soybean producer in the world. The disparity in corn production in particular is absurd, US produces more corn than the next nine of the top ten combined. At least with soybeans Brazil and Argentina can step in to level things out but the US truly is King Corn.

The final numbers on corn production this year will be interesting. Most midwest US farmers are already harvesting their corn crop. Yes, you read that right, already harvesting. People forget just how early corn and soy is planted, this isn't Uncle Jim Bob's 40 acre plot from back in the 20's, we're talking agri-business. If you're waiting until October to see what the harvest numbers are you're waiting way too long.

I predict ADM will laugh all the way to the bank and that China will be sending a great many US dollars back to the US in exchange for *something to eat*. They can't afford to go to war with us, they'd starve to death. As for India, well... no one thinks about them, do they? I think that's a mistake, they're on track to have more people than China very soon.

Seer's picture

"Once again the US holds all the cards that matter. Top corn producer in the world, top soybean producer in the world."

One "word:" GMO (wait till the pesticides that these crops require don't work anymore).

mijev's picture

I'm in china at the moment and a common rumor is that the actual population is more like 1.7B people. Who knows it if that is true but that would make the food situation even more critical. Also I'm somewhat surprised that they haven't blocked zerohedge like they have with twitter, YouTube, rollingstone, google play, sitonmyfacebook etc.

MarsInScorpio's picture

Why is anyone surprised that China is going down the tubes with the rest of the Western economies? Did someone forget that China is nothing but a factory producing goods for Western consumption?


When we don't buy, China doesn't build. I can't imagine a more straight-forward, easy-to-understand linkage, or as you say in ZH Land - coupling.


Despite the hyperventilated stories of Chinese billionaires, the truth is that China remains, as a whole, a dirt-poor rural nation. Sure, you can show me big cities teeming with activity, but I can show you abject poverty affecting the overwhelming bulk of the population. (China Scam Notice: In order to drive down the official poverty rate to 16%, the Chinese define the threshold as earning less than $1.25/day. Like the BLS, fix the numbers with a low enough threshold, and you could eliminate poverty in China with the next report.)


So exactly how strong is the internal consumer market in China? It is essentially non-existent as far as the massive bulk of Chinese being able to afford their own production.


I've wondered when the world will see China for what it is: a fraud. China is not capable of being an economic drive-engine because there is not enough wealth in the general population to create demand sufficient to decouple from the world and keep factories buzzing for its own people; chicken or the egg my fanny - demand precedes production. How long can you produce goods nobody buys? What's happening now proves demand precedes production. China is a reactive, not a pro-active, economy.


And as I've posted before, where exactly is the ROI on those empty cities they built? How can it be carried on balance sheets as an asset when they don't perform? In fact, what kind of asset are they really from the viewpoint that there is no demand for them as shown by the lack of people buying residences and setting up businesses in them? Do you have a clue how jacked-up their GDP numbers are because of scams like the empty cities? (And you thought US banks are broke . . . take out those false Chinese so-called assets and see what their balance sheet really looks like.)


China is nothing but a follower of the West's demand - the true Paper Tiger of the world. It's about time we recognized this, and started telling them what they are gong to have to do if they want to keep their factories open, and the masses employed.


Seer's picture

Spot-on commentary.

Also add in the fact that they're extremely dependent on imports for raw resources (esp energy).

NONE of this should be a surprise, trying to scale up beyond earth's carrying capacity and pretend that cliffs don't exist is pure insanity.

moskov's picture

This is the most retarded conclusion I have ever seen.

Let me tell you. What does soybean and corn imply to the food price of China


Soybeans and corn are only imported by China for cooking oil and for animal feed. They don't use it for the main food supply for China. We have far enough strategic supply and storage of rice and wheat, They don't taste that good but it's enough for war-time supply. And most importantly, most of the imports for soybeans and corn from USA are not for seasonal comsuption but for storage. So it's funny US would believe China cannot feed itself after all these years development.


For India, that's another matter.

Seer's picture

Apparently there's no shortage of crack (cocaine) there...

What wouldn't get imported would have to come from someplace else (internally).  Having "storage" isn't the same as PRODUCING!  Those paying attention might see the writing on the wall that says that this is going to be a trend: peak crop production.  For a country like China that has MASSIVE growth levels* this isn't going to turn out well.

* IMF had China pegged at 8.2% for 2012.  At this rate China would DOUBLE it's economy (and consumption) in UNDER a MERE 8 1/2 years.  Ain't going to happen! (yes, it happened in the past, but that was from a far smaller starting point)

Eventually GROWTH stops.  Most of the world has adjusted its growth to very low levels: whether this is some behind the scenes planning I don't know; but, as growth WILL stop, it will turn out to be better earlier rather than later (kind of like the notion that we should take the economic hits NOW and not push them off).

laomei's picture

China maintains a rolling stock of strategically deployed (read as fucking everywhere) stores of food.  These stores as used to manipulate market rates when needed and also maintain a solid 18 months of food to feed the entire damn country.


China is also having an amazing growing season this year, and if shortages in the US impact local prices, the government will simply restrict exports... not gonna fall for the same crap as before when GS decided to murder a few million people for profit.

Seer's picture

Again, STORING is NOT the same as "producing."

If China is importing food (and the above person said that importing cooking oil doesn't count?*) then it's at the mercy of the outside world.  Its growth pace WILL stop, and it's a CERTAINTY that it'll first surface through widespread food shortages (when people get hungry...).

* Anyone (such as the previous poster) who proclaims that the Chinese can forgo cooking oil needs to look up "nightsoils" (  NOTE: I'm a proponent of this, but, as tends to be the case with everything, there are "adjustments" that need to be made, there has to be fairly strict adherence to practices [in this case food HAS to be cooked]).

Seer's picture

"maintain a solid 18 months of food to feed the entire damn country."

Hm... would that be for a consumption rate 18 months from now, or would it be for today's consumption rate (or, gasp! a smaller consumption rate)?  And although China's population growth rate is low (just under .5%) its population is still INCREASING.  This would be a multiplier (exponentially applied) to the govt's push to increase consumption growth.

Failing to identify key components is like trying to fly an airplane in only two dimensions.  I could state that the US is able to extract and refine all the oil it needs from it's own stocks, the caveat being that per-capita use would have to be about 1/4 what it currently is.

If the 18-month number is what the govt is projecting then one has to take this with a grain of salt.  It is, after all, the same govt that set growth goals that are NOT being met (like defying Mother Nature is possible- silly humans!).  If they are wrong?  In the US all the "officials" were telling us that "housing prices would never go down."  Big difference between housing supply and food supply.  On a per-capita basis the US produces way more food than China, and I'm not seeing that people in the US are necessarily smug about this: the point being that China's food supply is a LOT closer to the edge than the US's.