Higher inflation in China and its impact on the outlook – UOB
|Economist Ho Woei Chen, CFA, at UOB Group assessed the recent inflation figures in China and the prospects for the economic growth.
Key Quotes
“China’s Consumer Price Index (CPI) rose further to 3.0% y/y in Sep from 2.8% in Aug. This was above market’s forecast of 2.9% and was also the highest inflation rate since Oct 2013. The higher inflation was led by further surge in pork prices by 69.3% y/y in Sep (Aug: 46.7%), this pace of increase was last seen in 2007-2008. We estimate that pork price had contributed to around half of the headline inflation in Sep given the weight of pork in China’s CPI basket of around 2.34%”.
“Despite higher headline CPI, core inflation (excluding food and energy) has remained subdued at 1.5% y/y, unchanged from Aug and indicating a lack of demand side pressure”.
“Sep Producer Price Index (PPI) was in line with expectation at -1.2% vs -0.8% in Aug, with decline led by larger drop in raw material prices by 4.8% y/y. This was the third straight month of negative reading in PPI and the deflation is likely to persist given weak manufacturing outlook and subdued commodity prices. Nonetheless, on a m/m basis, PPI rose 0.1% after three preceding months of decline”.
“The price data in Sep is in line with further monetary policy easing in China as growth comes under pressure. The 3Q19 GDP on Fri is expected to moderate further to 6.1% y/y (UOB est: 6.0%) from 6.2% in 2Q19”.
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