Inflation or Deflation in China?

The latest monthly data released Sunday night shows that Consumer Prices in China rose, while the Price of Goods Purchased and Sold by Producers declined, as shown on the graphs below. Producer Prices have now dipped below zero for the first time since 2009.

Since they're both "leading indicators of consumer inflation," and they're both telling wildly differing stories, it's difficult to know where inflation actually stands in China...and which indicators the Chinese use to calculate inflation in order to set interest rates. We'll see if these prices continue to diverge on the next month's data releases.