What's going on?

The cost of producing goods in China didn�t increase quite as quickly in March as it did in February � and that could have a meaningful impact on markets!

What does this mean?

Over the past year, it�s become about 8% more expensive to make things in Chinese factories. That�s partly been driven by a pickup in the Chinese economy, but it�s also been due to the big increase in the prices of industrial commodities like copper and iron ore. As goods became more expensive to produce, the higher costs were largely passed on to buyers of the finished products. And since China produces goods that are consumed all over the world, that helped drive up prices globally � with inflation hitting multi-year highs in the US, UK and Europe.


But if Chinese factory prices continue to decrease in the coming months, as expected, it should lead to less pressure on inflation in the rest of the world.

Why should I care?

The bigger picture: Inflation may be peaking in most major economies.

Without another sharp pickup in commodity prices over the next 12 months, overall inflation rates are likely to fall in most economies (the UK is a bit different because of the big fall in the pound). After months of hearing financial commentators discuss the impacts of increasing inflation, this could come as a somewhat of a surprise to investors. (tweet this)


For the markets: Declining inflation supports bond prices.

Inflation erodes the value of the future cash that a bond pays its investors: the higher the rate of inflation, the less, say, $100 will buy you in five year�s time (which obviously makes bonds less attractive). Therefore, if inflation is lower than expected, it tends to push up bond prices (for more on inflation�s impact on investments, click here).