Recently, the RMB exchange rate has continued to fall. As of November 18, the central parity rate of the RMB against the US dollar was 6.8796 yuan, the lowest since June 24, 2008. The central parity rate of the RMB against the U.S. dollar has been continuously lowered, surpassing the longest consecutive decline since December 2015, and driving up commodity prices.
(Jiangxi New Materials Co., Ltd.)
Global inflation creates a “hotbed of growth”
Regarding the current hot commodity market, Liu Xintian, editor-in-chief of Business Club and secretary-general of China Commodity Development Research Center, believes that there is the power of inflation behind the soaring commodity prices. Domestic commodity market prices have been rising again since July and have been soaring. The commodity price index BPI has also soared from 703 points in early July to 795 points at the end of early November, setting a new high for the year. Liu Xintian’s analysis pointed out that the biggest driving factor for this round of strong rise in commodity market prices is inflation. Global inflation has long laid a “hotbed for rising prices” in the market. “From the initial first round of quantitative easing (QE1) in the United States in 2008 to the third quantitative easing (QE3) implemented in 2012, over a period of seven or eight years, the United States’ quantitative easing policy had a negative impact on the global commodity market and the world economy. It has had a huge impact. China has implemented a relatively loose monetary policy since the outbreak of the international financial crisis in 2008. Low interest rates and additional currency issuance are relatively common economic phenomena around the world in recent years.” Liu Xintian explained, “Inflation has a negative impact on the economy. The impact of the commodity market is a structural force and a force that is difficult to reverse.”
PPI is expected to return to the “2 era”
Zhao Zeze, an information analyst, believes that the market has recently begun to re-examine the impact of Trump’s victory. The gradual improvement of the U.S. economy and the increase in expectations for an interest rate hike in December have led to the recent strengthening of the U.S. dollar index. From a domestic perspective, the national consumer price index (CPI) rose by 2.1% year-on-year in October, an increase of 0.2 percentage points larger than that in September. During the same period, the industrial producer price index (PPI) rose by 1.2% year-on-year, and the increase expanded by 1.1 percentage points after turning from negative to positive in September, which also triggered an increase in market expectations for inflation. Judging from the impact on the market outlook, the depreciation of the RMB is beneficial to the export of domestic goods and can push up domestic commodity prices to a certain extent. Reflected in the commodity market, including steel, due to the increasing influence of China’s market, the continuous decline of the RMB exchange rate is actually one of the driving forces behind the recent rise in commodity prices.
The crazy rise in commodity market prices will also have a certain impact on CPI and PPI. Liu Xintian pointed out that since the beginning of this year, the year-on-year decline in PPI has continued to narrow. In September, PPI turned from falling to rising, ending 54 consecutive months of continuous year-on-year decline. In October, the PPI increase also expanded significantly. Liu Xintian predicted that in November, PPI may return to the “2nd era” after the CPI returned to the “2nd era”.
