Economy in Brief

Inflation reports are still very much of market interest largely because inflation remains in the forefront, sufficiently contained, to allow central banks to choose a policy course of easing monetary policy. To stay on that course, they will need for inflation to remain under control.

The German PPI in September is flat after falling 0.5 in August and rising only 0.1% in July. The PPI excluding energy has flattened in July, fallen by 0.2% in August and is up by only 0.1% in September. Both of these PPI series generate significant optimism sequentially as well. The PPI headline series falls by 1.7% over 12 months; it falls at a 2.5% annual rate over 6-months, and it falls at a 1.6% annual rate over 3-months; its change is negative on all three horizons. Inflation is quite contained and reinforcing of the theme of cutting interest rates from the standpoint of the monetary authorities.

For the PPI excluding energy inflation is up by 0.9%, Over 12-months it rises at a slower 0.7% annual rate over six-months and the PPI excluding energy falls by 0.3% over 3-months. The contained status of headline inflation is thus translated into the core so that the sequential core pattern shows inflation progressively lower measured over longer to shorter periods. For the German economy, its good news from the standpoint of inflation although part of the cost of this is that the German economy has been exceptionally weak.

The details of the PPI are a little bit less interesting because they're not seasonally adjusted, however, consumer goods, investment goods, and intermediate goods, trends are working lower.

Comparing the PPI to the CPI - and to the CPI excluding energy - we see that the excellent PPI trends do not translate directly into solid CPI inflation. CPI inflation is somewhat erratic but at 2.4% over 12-months and at 3% over three months, and the CPI ex-energy at 2.6% over 12-months and much higher at 3.4% at an annual rate over three-months, the German CPI has more work to do.

Still the underpinning of a solid PPI report is reassuring. With Brent oil prices off by about 7% over 12-months and falling at a 15% annual rate over three-months, the beneficial inflation trend is being driven by weakness in oil prices. And that does help the PPI more and faster than the CPI.

This week, we examine key developments across China, Japan, and the broader Asian region. In China, the Q3 GDP outturn extended the recent trend of slowing growth amid a still-fluid external backdrop and uneven domestic performance. While exports—and almost by extension, industrial production—continued to support growth, domestic demand remained soft, with retail sales and the property market still facing headwinds (chart 1). Nonetheless, despite growth moderating to 4.8% y/y, a mild source of comfort is that China remains on track to meet its 5% annual growth target, even if Q4 growth eases further to around 4.6% y/y (chart 2). Externally, uncertainty persists. US-China tensions have resurfaced, dampening sentiment in Chinese equity markets after initial post–Golden Week resilience (chart 3). All eyes are now on US-China talks in Malaysia and the Fourth Plenum in Beijing this week for potential policy or strategic signals.

Elsewhere in the region, AI-related optimism continues to drive gains across several Asian equity markets (chart 4). In Japan, political uncertainty has eased slightly as LDP leader Takaichi’s path to becoming the next Prime Minister became clearer following the Japan Innovation Party’s decision to form a coalition with the LDP. That said, economic policy uncertainty remains elevated following the LDP’s recent string of weak election results (chart 5). Finally, attention turns to upcoming monetary policy decisions in South Korea and Indonesia, where further easing appears less certain given domestic considerations (chart 6).

China’s Q3 results China’s Q3 real GDP growth came in at 4.8% y/y, slightly above expectations, though the latest print extends the country’s recent trend of moderating economic momentum. While exports likely helped support growth during the quarter—thanks to China’s diversified export base despite plunging shipments to the US—other sectors continued to show signs of weakness. This uneven growth pattern was echoed in the accompanying September activity data: retail sales growth cooled further, even as industrial production accelerated (chart 1). Meanwhile, property prices extended their multi-year decline, though the pace of contraction continued to slow. Looking ahead, investors are watching to see how China’s recent “super golden week” holidays will feed into Q4 growth indicators. At the same time, renewed US-China tensions threaten to disrupt late-year momentum should new tariff or non-tariff measures take effect soon.