Gold prices masking continued deflationary pressure

Headline CPI inflation returned to positive territory last month, with core inflation climbing to a three-year high. But these gains largely reflect temporary factors, most notably higher gold prices, and don’t suggest to us that China’s deflation problem is going away. Despite official pledges to boost consumption, signals from the upcoming Five-Year Plan point to a continued focus on supply-side expansion, meaning that deflationary pressures will likely persist.