Deflation Pressure appears after Chinese New Year

On Thursday, April 11th, inflation data from China caught the attention of investors. Trends in both producer and consumer prices indicated an environment of weakened demand, contrasting sharply with recent Purchasing Managers' Index (PMI) survey data. Later in the day, producer prices in the United States and comments from the Federal Reserve also warranted consideration from investors.

Data from March revealed an environment of weakened demand. Producer prices fell by 2.8% year-on-year, slightly higher than February's 2.7% decrease. Economists had anticipated a 2.8% decline in producer prices. In a low-demand environment, producers lowered prices to compete for new business. The downward trend in producer prices restrained pressure on consumer prices.

Consumer price trends reflected a decline in consumer spending. The annual inflation rate in March dropped from 0.7% to 0.1%. Economists had expected an inflation rate of 0.4%. Consumer prices fell by 1.0% month-on-month, reversing the 1% growth seen in February. Economists had anticipated a 0.5% decrease.

The Lunar New Year in China distorted consumer price trends in February. However, producer prices have been on a downward trend in recent months. In January, producer prices fell by 2.5% year-on-year.

Recent economic indicators point to an improving demand environment. China's survey-based Purchasing Managers' Index (PMI) showed an improved demand environment. However, the survey also highlighted a decline in input prices. Businesses attributed the decline in input prices to reduced raw material costs.

 AUD/USD fluctuates

Before the inflation data was released, the Australian dollar fell to a low of $0.65018 against the US dollar and then rose to a high of $0.65167.

However, in response to the inflation data, the Australian dollar fell to a low of $0.65095 against the US dollar and then rose to a high of $0.65176.

On Thursday, the Australian dollar rose by 0.06% against the US dollar, trading at $0.65159.

Response in US Markets

On Thursday, the producer prices in the United States will draw investors' attention. Following the US CPI report, the upward trend in US producer prices may indicate a more optimistic outlook for consumer prices. In an environment of increased demand, producers raise prices, passing costs on to consumers.

Economists anticipate that producer prices will increase by 2.2% year-on-year, slightly higher than the 1.6% increase in February. Additionally, economists expect core producer prices to rise by 2.3% year-on-year. In February, core producer prices rose by 2.0%.

In addition to inflation data, attention will also be on US labor market data. Economists expect initial jobless claims in the US for the week ending April 6th to decrease from 221,000 to 215,000. However, unless initial jobless claims unexpectedly surge, the trend in producer prices may have a greater impact.

Investors should monitor the Federal Reserve's response to the March inflation data. FOMC members Raphael Bostic, Susan Collins, and John Williams are scheduled to speak.