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.”
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.
