China: Higher inflation to trigger monetary tightening - Danske Bank

Analysts from Danske Bank, now expect two rate hikes from the central bank of China. They changed their view after the latest inflation report. 

Key Quotes: 

“Today’s CPI inflation numbers surprised on the upside to 2.5% y/y from 2.1% y/y, driven by a rise in core inflation. PPI inflation also rose further to 6.9% – the highest level in six years.”

“The increase is driven by the stronger activity and increases in commodity prices over the past year. We now expect CPI inflation to overshoot the 3% target in H1. Therefore, we also change our monetary policy forecast and now look for two hikes in official policy rates of 25bp over the next two quarters.”

“We expect a peak in PPI inflation soon as well as a moderate slowdown in growth to keep the tightening cycle short.”