China: Disinflationary pressures emerge in July – UOB

Pablo Piovano FXStreet

UOB Group’s Economist Ho Woei Chen, CFA, reviews the latest inflation figures in China.

Key Takeaways

In line with expectation, China’s CPI headed into a negative reading for the first time since Feb 2021 while PPI registered its 10th straight month of price declines in Jul.

Having said that, the deflationary condition in China are likely to be mild and temporary. We expect China’s headline CPI to return to positive much sooner than the PPI, noting that headline CPI reversed its 5 straight month of m/m declines and core inflation has actually picked up in Jul.

Looking ahead, the severe floods in parts of China this month could put some upward pressure on food prices but sluggish external and domestic demand as well as the slack in the job market will still keep price pressures weak in general. This continues to support further easing of China’s monetary policy. As such, we further lower China’s headline inflation forecast for 2023 to 0.4% from previous projection of 0.8% (2022: 2.0%) and our PPI forecast to -3.1% from earlier call of -2.0% (2022: 4.1%).

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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