The Chinese rebound story is losing momentum fast, which has important implications for Western economies and assets, while the impact from freight rates on inflation might not be as large as previously feared. 

Take aways 

• Beta from freight rates to goods inflation is lower than usual due to inventory building in the US

• Chinese retail and IP down some 10% from the pre-pandemic trend 

• China’s export of disinflation will force policy makers in the West to introduce tariffs and subsidies 

Greetings from a sunny Copenhagen. This week we’ll discuss freight rates and what inventory data tells us to expect going forward and then we’ll dive into some more data points on the weak Chinese economic outlook. 

There is evidence suggesting that the rise in freight rates is partially attributed to U.S. firms’ concerns over Trump’s tariffs on Chinese goods. This apprehension is reflected in the ISM inventory figures, which have shown increases from late 2023 through to the spring of 2024. The uptick in freight rates is corroborated by more than just ISM data. Chart 1.a reveals a general increase across the broadest range of U.S. PMI numbers on inventories. In contrast, European inventory levels, particularly in Germany and France, have either remained stable or declined. This suggests that the rise in freight rates is more likely due to supply disruptions—such as Houthi attacks, droughts in the Panama Canal, or tariffs—rather than an increase in demand. This interpretation is further supported by the supply and demand dynamics in the PCE basket, where demand-driven inflation has returned to its pre-COVID trend on a year-to-year basis.

This development also indicates that the expected rise in consumer goods that we saw during the pandemic might be too exaggerated and that firms think menu costs are too high for price changes and that consumers cannot stomach price rises. 

Chart 1.a: US inventory PMIs

Chart 1.b: US firms increased inventories over the spring

Chart 1.c: While European firm didn’t