According to the official Federation of Logistics and Purchasing, the Chinese purchasing managers index (PMI) dipped to 52.2 from a January reading of 52.9.
Economists had steeled the market to expect a slightly deeper dip to 52.1, but in any event the reading of above 50 indicates that Chinese factories are still ramping up new activity.
While many hope that slowing growth in China will curb local inflationary pressure, so far the progress has been sluggish.
Input prices climbed to 70.1, indicating that if anything, local wholesale inflation is accelerating. This is likely a factor of commodity and power costs, and given the recent oil spike is almost certain to remain in the picture for some time to come.
Retail inflation, considered far more dangerous to Beijing as a trigger of mass unrest, touched 4.9% in January, well above the unofficial “comfort zone” of around 4%. Food and fuel are major flash points here, although the government has focused much of its attention on housing prices.
The private HSBC number — which competes with the official data but is generally considered less subject to government manipulation — declined as well, falling to 51.7 from 54.5 in January.
Given the confluence of forces at work here, the yuan (quote) will be the likely beneficiary. To fight inflation, Beijing will raise interest rates to restrain inflation, let its currency appreciate to a more natural level or both. Good news for CYB (quote) and similar yuan funds.