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At the end of July, the Political Bureau of the CPC Central Committee, while affirming that the overall economic operation was stable and progressing, pointed out that the adverse effects of the current changes in the external environment have increased, domestic effective demand is insufficient, economic operation has diverged, there are still many risks and hidden dangers in key areas, and there are pains in the transformation of new and old kinetic energy. It can be seen that the central government has a clear understanding of the difficulties and challenges facing the current economic operation. However, the meeting also emphasized that these are problems in development and transformation. We must not only enhance risk awareness and bottom-line thinking, actively respond, but also maintain strategic focus and firm confidence in development. One of the keys to firm confidence is to correctly interpret economic and financial data. From an international comparison, if we do not adopt "double standards", the following three "common sense" of China's economy and finance are all open to discussion.

PPI's continued negative growth will not prevent the ECB from cautiously cutting interest rates

The industrial producer price index (PPI) has continued to show negative year-on-year growth since October 2022, which is seen as an important argument that China is in deflation. However, if the same standard is applied, it is difficult to understand the current dilemma of the ECB's monetary policy.

The eurozone is experiencing a deeper PPI decline than China. From May 2023 to June 2024, the eurozone's PPI has been negative year-on-year for 14 consecutive months. Although this is less than China's 22 consecutive months of negative year-on-year growth from October 2022 to July 2024, the eurozone's 14-month PPI average decline of 6.7% is much higher than China's 22-month average decline of 2.4%.

The decline in PPI did not affect the ECB's monetary policy path. After the first negative year-on-year growth in PPI in May 2023, the ECB raised interest rates three times in June, July and September of the same year. It then remained on hold for five times until the first 25 basis point rate cut in early June 2024. The current ECB President Lagarde explained that the reason for this rate cut was not the negative PPI, but because the increase in the Harmonized Consumer Price Index (HICP) had fallen by more than 2.5 percentage points since the last rate hike in September 2023, and the inflation outlook had improved significantly.