China’s weakening economy might be the key to pushing inflation down in the US without a recession

Disinflationary trends in the US are taking hold partly because of China’s weakening economy, according to Ed Yardeni.Yardeni said on Thursday that the US could continue to see lower inflation without a recession.China’s aging demographic profile and weak consumer spending is disinflationary for the US, Yardeni said.

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If the US manages to get inflation back down to the Federal Reserve’s long-term target of 2% without triggering a recession, it might have to partly thank China, according to market veteran Ed Yardeni.Yardeni highlighted in a Thursday note to clients that certain economic forces in China are having a disinflationary impact on the US, and that could ultimately pave the way for a soft landing in the US economy.”Something is definitely wrong with China’s economy,” Yardeni said, alluding to the fact that months after the Chinese government lifted its strict COVID-19 lockdown measures, its economy hasn’t picked up accordingly.That has flipped the economic narrative on its head, as many economists had expected at the start of this year that a reopening of China’s economy would help lift the global economy while also putting upside pressure on inflation.

But Chinese exports fell in June and the country’s imports have remained flat since mid-2021, Yardeni highlighted, and that’s leading to lower prices for goods. “Confirming the weakness in China’s economy is that the country’s PPI fell 5.4% year-over-year through June, while the CPI was unchanged over the same period,” Yardeni said. “China’s PPI inflation rate tends to be a leading indicator for the US PPI for finished goods, which fell 2.8% year-over-year in June.”China’sweak economy is exporting disinflationary t …

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