The ongoing fight against inflation got more interesting this week when a Chinese government body issued a purchasing managers index (PMI) showing prices dropping, while HSBC issued their own PMI for China showing prices continuing to rise.
For observers concerned about the reliability of official statistics in China and the difficulties of getting a clear picture of the economy in an environment where all information can be politicised, the competing indexes are just another sign of China’s opacity.
The PMI from the China Federation of Logistics and Purchasing, a government-associated industry organisation, showed manufacturing activity slipping to a still-robust 52.9 in January from 53.9 in December. HSBC’s seasonally adjusted numbers, indicated China’s manufacturing activity in January rose to 54.5 from 54.4 in December.
As the PMI is considered an early indicator of inflation, and the central government in China has made inflation control one of their primary priorities for 2011, and charged government departments with ensuring that price growth starts to cool off, the difference between the two measurements raises the possibility that reality may be under pressure from political objectives.
In December, China’s National Development and Reform Commission was quick to claim victory against inflation based on a reduction in the official consumer price index (CPI). However, problems abound with the CPI as well.
Many key commodities in China are still subject to price controls — for instance fuel, and this has a profound impact on keeping the CPI stable without showing the impact these price controls have elsewhere in the economy. Also the measurements involved in the CPI are outdated and non-transparent. The CPI basket is updated only every five years, and the weights of different elements are not disclosed. This leaves the numbers open for political manipulation.
More information on the differing PMI data is available here, and the difficulties of relying on China’s CPI were recently documented by the New York Times.
In some months time, when the state of the economy is already apparent, we will have some feel for how accurate these numbers are. In the meantime, the current numbers only add to an atmosphere of uncertainty in 2011.
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