Inflation, or something else?

There are, however, real components mixed up in commodity prices. Yes, supply factors balanced against real economy demand before then being spliced into any perceptions money-wise.

Given the real-ness of these prices, would it really surprise anyone that commodity costs seem to correlate very highly with the marginal pass-through economy in China? The Chinese system has for decades acted as the central nexus between the developed world buying manufactured goods made there and the developing, more-resource oriented systems sending raw material to China in order to do the manufacturing.

Build China so China could build all the things. This had meant a huge, sustained influx of those raw materials. The more and faster the Chinese built, the more likely commodity prices in their real sense would be bid upward, too. US QE not much difference (because, in the end, it is not money printing).

Therefore, a relatively stable – even visible – correlation between global commodity prices (in US$’s, of course) and the rate of additional Chinese imports. The more that China demanded from the rest of the world, the more demand for commodities against relatively less elastic supply.

See for yourself:

Commodity prices have come off their sizzling boil, of course, but the question is whether or not this is some temporary pause in what many have called the beginning of a supercycle. For something like that to happen, “money printing” on the one hand and a resurgent China on the other. This is why, for inflation narrative purposes, China is always classified as the strongest economy (whether it is or not).

How might we know in terms of Chinese imports? That country’s General Administration of Customs (GAC) doesn’t provide any seasonally-adjusted monthly figures.

First, though, the raw data. For the month of August 2021, estimates released today, GAC puts record highs for both exports out of China as well as inbound trade coming in. That’s neither a big deal nor is it a useful description; how fast and how far from one record high to the next.

According to Customs, the year-over-year rate of change for exports was 25.6%, while for imports 33.1%. Yet, those include large base effects from low comparisons with last year’s recessionary hole.

And it was the opposite of “money printing” which doomed the whole period (Euro$ #4). What we find currently are not the growth rates anyone should associate with a recovery let alone a real inflationary boom extending well beyond one.

Again, while there aren’t seasonally-adjusted monthly data values, we can look back through recent years and compare the changes between specific months, say, after April and through the end of August each year. The same seasons.

What we find in doing so is that, yes, there does appear to be some significant slowdown in the more recent pace of Chinese import activity (undoubtedly some will blame COVID and port bottlenecks). The difference from May through August (inclusive) 2021 compared to the same months in 2020 is just more than 6%. Last year it was almost 14% (May-Aug 2020 vs. May-Aug 2019).

And it had been emptied out by, previously, the opposite of “money printing” (Euro$ #2).

Up to August 2021, then, Chinese imports have not really been all that robust to begin with and there is growing evidence even so the best days might be behind.

Still, when it comes to the “real” piece of commodities insofar as real demand goes, there’s much which does vigorously correlate prices to real economy.