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Goldman Scrambles to Comfort Its Clients Who Are Freaking out about China’s Soaring Prices

By Tyler Durden | 11 May 2021

ZERO HEDGE — It’s hardly a secret that commodity and raw material prices in China have been soaring: this was confirmed by last night’s April PPI inflation print which surprised the market to the upside and reached 6.8% Y/Y, the highest since 2017.

The frenzy culminated with Monday’s 10% one-day jump in iron ore prices which, as Goldman’s China strategist Hui Shan wrote this morning, “brought many questions from clients regarding the impact of upstream price increases on the Chinese economy and monetary policy” especially when it comes to the threat risk of tighter monetary policy/rate hike by the PBOC.

So to address these growing concerns that China may be in the early stages of commodity hyperinflation, Goldman addresses these questions below in collaboration with its commodities strategists.

Q: Is China demand as strong as the commodity prices suggest?

Based on our reading of both macro data (e.g., PMI and exports) as well as micro data (e.g., steel consumption and air pollution), we think on-the-ground demand remains solid. Our equity analysts’ channel checks confirm stable infrastructure and property activity and resilient auto and appliance production in April. However, it is important to emphasize that China’s role in the commodity market has changed somewhat from previous years in three ways. […]

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