Chinese inflation – unreported retail
China’s inflation print for June at 2.7 percent, a four-month high, was higher than forecast, but part of the picture could be obfuscated by a lack of accounting for the ever-growing online retail sector.
Gross domestic product figures have been consistently revised down this year from 8 percent to around 7.4 percent by July, with significant doubt over the reliability of official data. Some analysts forecast the more likely GDP print is around 5 percent, given the lack of punishment for falsifying local data and incentives for better growth figures for regional prints.
With an increasing share of shopping carried out online through websites such as Taobao, Tmall and Paipai, there is an increasing argument for online retail numbers -which had lifted one metric of inflation closer to 7 percent in April – to be included in the headline CPI. That metric is the retail sector’s internet shopping price index (iSPI).
This includes (based on the compilation of Taobao sales data) food, tobacco, liquor, clothing, household equipment and maintenance services, health care and personal products, transport and communications, entertainment and educational products and services including residential and office supplies. If inflation were calculated on this basis, it could be more accurately computed at 3.15 percent today.
On the connection between the iSPI and the CPI numbers, analysts at ICBC have said:
Network retail price index (iSPI)… should generally reflect changes in the general price of the domestic online retail channels, which is ultimately the formation of a national network of retail price index and even the formation of the first stepping stone in the CPI process of covering the online retail channels.
Take a look at this chart for a closer look at the level where inflation could be more accurately estimated. In recent months, the gap between the internet shopping index and official CPI data has started to converge, to around 3.65 percent today from as wide as 11.9 percent in May last year.
Online retail holds opportunities for the investor too. According to McKinsey & Company research in March, the online marketplace ecosystem in China accounts for 90 percent of transactions, though covers only 70 percent of investment. The current level of online market activity breaks down on a GDP per capita basis.