Well the two monthly surveys of Chinese manufacturing again had good and bad news yesterday.
The good is that manufacturing is still solid, the bad is that inflationary concerns remain at the forefront of thinking among Chinese companies.
The official purchasing managers survey showed a small easing in activity in January, but input prices rose sharply, keeping the pressure on the government to tackle inflation despite easing growth.
The official purchasing managers’ index fell to 52.9 in January from 53.9 in December, the China Federation of Logistics and Purchasing said yesterday.
Input prices jumped to 69.3 from 66.7 in December, suggesting that inflationary pressure was still on the rise.
"This indicates that the economic recovery trend is not yet clear, and we may see economic growth slow down a bit," Zhang Liqun, a government researcher, said in a statement accompanying the release.
"The new export orders sub-index continued to fall while the input prices sub-index went on rising, which suggests that enterprises could face relatively big difficulties in rising costs and slowing demand," he added.
However, global bank, HSBC said its own China manufacturing PMI rose slightly in January, edging up to 54.5 from 54.4 in December.
But it was still under November’s 55.3 reading.
The HSBC also had slightly better news on costs, with the input-cost sub-index easing to 71.0 from 72.3 in the previous month.
The January reading was the lowest that sub index has been for four months.
But HSBC said the level is still high and forecast that China will look to tighten policy, probably in the form of further hikes to banks’ reserve asset requirements.
(Already increased seven times in the past year, with two additional rate rises.)
HSBC’s chief China economist Hongbin Qu said in a statement that the “strong growth momentum leaves room for Beijing to fully focus on checking liquidity and inflation pressure”.
“Quantitative tightening in the form of reserve requirement ratio hikes will remain the most effective policy tools,” Qu said.
Consumer price inflation in China ran at an annual pace of 4.6% down from, November’s 28-month of 5.1%.
The inflation figures for January and February won’t be issued until March because China is shutting down for the Lunar New Year from the end of this week and parts of the country have been on Spring festival Holidays for the last 10 days.
But many economists believe inflation is set to accelerate again in January due to the seasonal jump in food demand and prices ahead of the Lunar New Year.
In Australia, manufacturing activity was again soft in January due to weaker domestic demand and the stronger Australian dollar.
The Australian Industry Group/PwC Australian Performance of Manufacturing Index (PMI) rose 0.4 points to 46.7 in January, staying below 50 for the fifth consecutive month.
Readings below 50 indicate a contraction in activity. Nine of the 12 manufacturing sub-sectors posted declines in activity for the month.
In the US, the latest measure of manufacturing activity revealed the best result for more than six years.
The Institute for Supply Management’s index for manufacturing activity climbed to 60.8 in January, up from 58.5 in December.
Any reading above 50 indicates expansion, and the index has remained above that level for 18 consecutive months.
While January’s index is at the strongest level since May 2004, one of its components could foreshadow inflation as a threat to the economy down the road.
The ISM Prices Index, which measures the cost of raw materials used in the manufacturing process, surged ahead to 81.5, up from 72.5 in December.
That was in fact similar to the breakdown in the Chinese PMIs.
