great wall

Inflation has been creeping up worldwide, leading to expectations of higher interest rates. But news in from China today suggests that danger is going away, on its own accord.

Back in February a somewhat alarming picture seemed to be emerging. In Germany, inflation surged to 2.2 per cent, from just 0.8 per cent in November, and minus 0.3 per cent the previous April.

In China, there was a scare too, with producer price inflation jumping to 7.8 per cent, the highest level since 2008, inducing headlines about the return of global inflation. As for Chinese consumer price inflation, this jumped to 2.5 per cent, a 32-month high, in January.

But things look different now, and a good deal more benign.

In February, Chinese inflation fell back to 0.8 per cent.

In March, German inflation dropped back to 1.5 per cent.

And today we had data on China for March.

Producer prices inflation is now at 7.6 per cent, still high, but falling.

As for consumer price inflation, this rose a tad, to 0.9 per cent but seemed to provide pretty strong evidence that the inflation scare from earlier in the year was over.

Julian Evans-Pritchard, China Economist at Capital Economics said: “we expect producer price inflation to drop back further during the coming months as base effects become less favourable and economic activity begins to cool on the back of a tighter policy stance. Consumer price inflation may regain some ground but should remain below 2.0 per cent. The upshot is that those anticipating a further reflation in China are likely to be disappointed.