China: December PPI highlights risks of stagnation - Nomura
|Research Team at Nomura notes that China’s producer price index (PPI) continued to strengthen in December, rising to a much higher than expected 5.5% y-o-y from 3.3% in November (Consensus: 4.6%; Nomura: 4.8%).
Key Quotes
“Inflation is not only evident in upstream industries but has also started to spread downstream, which points to a rising risk of PPI inflation passing through to CPI inflation.”
“CPI inflation moderated slightly to 2.1% y-o-y in December from 2.3% in November (Consensus: 2.2%; Nomura: 2.0%), with food price inflation weaker than the historical average, while non-food price inflation picked up. Inflation in the residence and service components was resilient – a sign of high property prices passing through to the CPI, in our view.”
“Based on the higher-than-expected PPI reading, we revise up our 2017 PPI inflation forecast to 4.4% from 1.0%, and also our CPI inflation forecast to 2.6% from 2.4%.”
“We expect nominal GDP growth to rebound in 2017, mainly driven by higher inflation. However, we are not changing our forecast of 6.5% real GDP growth in 2017, compared to the forecast of 6.7% in 2016. There are still plenty of headwinds to economic growth coming from a cooling property market and policymakers’ commitments to deleverage the economy. In addition, a rising inflation outlook adds to risks of monetary tightening, which may further limit growth.”
“Given our outlook for higher inflation while the growth outlook remains lacklustre, we believe China’s economy is likely to head into a period of stagnation in 2017.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.