China: Inflation loses traction in February – UOB
|Economist at UOB Group Ho Woei Chen reviews the latest inflation figures in China.
Key Takeaways
“Headline inflation slowed to 1.0% y/y in Feb, the lowest in a year, with easing price pressure seen across both food and non-food components. This indicates that the recovery in domestic demand is not on solid grounds yet.”
“Despite the weaker than expected inflation outturn year-to-date, we are keeping our forecast for headline inflation at 2.8% this year (2022: 2.0%) as we monitor the pick-up in price gains ahead, particularly in 2H23 as the economy is expected to return to stronger fundamentals.”
“The PPI remained in deflation for the fifth consecutive month, which worsened to -1.4% y/y in Feb (Bloomberg est: -1.3% y/y, Jan: -0.8% y/y). This was again attributed to a high base comparison particularly high oil prices while the National Bureau of Statistics said that the production recovery of industrial enterprises has accelerated, and market demand has improved. On a sequential basis, PPI was flat after falling in the two preceding months.”
“For the full year in 2023, PPI could be slightly negative at -1.0% after rising 4.1% in 2022 and 8.1% in 2021.”
“People’s Bank of China (PBOC) indicated there may be little room for policy adjustment this year as the real interest rates are at a relatively appropriate level. We will review our LPR forecasts after the rate setting on 20 Mar. Although we have factored in a 10bps cut to the LPRs by end-1Q23, the prospect of that happening has weakened. More important to watch will be the 5Y LPR as a reduction to the rate will signal strong government support to the real estate sector.”
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.