China's wholesale inflation climbed to a near four-year high in May because Iran decided to turn the Middle East into a fireworks show and disrupted energy supplies. The AI boom also contributed. These are the input costs. You know what input costs are? They're the things that go up before the things you buy go up. Except you already bought at the top three months ago.
The People's Bank of China now gets to watch producer prices surge while consumer demand stays flatter than a cardboard cutout of Jerome Powell. This is what economists call a reflationary boost. I call it getting kicked in the teeth by commodity markets you can't hedge because your broker won't let you trade Brent crude futures without a Series 7.
Iran's involvement in regional conflict pushed oil and raw materials higher. China imports both. They make things with those materials. Then they sell those things to you at a markup. This is called a supply chain. You learned about it in 2021 when your PlayStation took nine months to arrive. You learned nothing from it.
The AI boom means every tech company needs more semiconductors, more rare earth metals, more copper wiring to connect the servers that will eventually replace you at your job. China produces most of this. Demand goes up. Prices go up. Your calls expire worthless. This is the circle of life.
Wholesale inflation at a four-year high means manufacturers pay more. They pass those costs to retailers. Retailers pass them to consumers. Consumers are you. You're holding bags from February when you bought the dip on Chinese EV stocks because some guy on Twitter said they were the next Tesla. They were not the next Tesla.
War in the Middle East gives China's economy a reflationary boost. You get a margin call. The market remains undefeated.
Photo by Road Ahead on Unsplash
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