China Defies Fossilflation with Renewable Energy Boost

China's resilience to inflation is not just due to its monetary policy, but also because of its ability to reduce oil consumption without affecting mobility. In the second quarter of this year, China burned 9% less oil than in the same period last year, with transport oil savings reaching 16%. Urban passenger travel increased by 2.9%, and freight volumes rose by 2.4%. This reduction in oil consumption was not due to a decrease in imports, but rather because of the country's efforts to transition towards renewable energy sources.

The electrification of transportation played a significant role in this shift, with the electric vehicle fleet growing 33% larger than last year. Charging volumes increased by 60%, indicating that existing vehicles were used more and gasoline cars less. Electric heavy-duty trucks saw sales rise by 77%, with their share exceeding 45% of new sales.

However, the picture is not entirely rosy. Coal consumption for electricity generation rose 2.4% in the second quarter, while natural gas production declined by 18.1%. This increase in coal power generation was due to the waste of already installed renewable power and the flows on long-distance transmission lines.

Despite this, China's economy appears to be decoupling from fossil fuel prices. The country's consumer inflation rate stood at 0.8% in August, compared to 3.2% in the eurozone. This divergence has led economists to coin the term 'fossilflation', highlighting the difference between oil price shocks and traditional inflation.