Chinese money and credit numbers for October were disappointing, signalling that policy easing has yet to gain traction and may need to be stepped up.

A post last month noted a modest recovery in six-month growth of narrow money and broad credit in September but argued that a further rise would be necessary to warrant shifting away from a negative view of economic prospects. Growth, instead, slipped back in October – see first chart.

Real-terms money / credit expansion fell to a new low in October as six-month consumer price inflation rose further – second chart. The inflation spike, however, has been driven by food and energy prices, which are now reversing lower – third and fourth charts.

Economic activity is receiving support from a pick-up in infrastructure spending but public sector fixed asset investment is not yet growing strongly – fifth chart. Private investment has remained robust but may lose momentum in response to slowing profits and as housing construction cools - sixth and seventh charts.

The number of downgrades to company earnings forecasts by equity analysts has risen sharply in November, consistent with a further loss of economic momentum - eighth chart.

A cautious / negative view of economic prospects will be retained here pending a significant rebound in real narrow money growth. This remains possible: the failure of nominal money trends to recover to date is not inconsistent with historical experience of the policy transmission lag, while further easing is in the pipeline and inflation developments, as noted, should be supportive.