China: Lower inflation could support further PBoC easing

Economist at UOB Group Ho Woei Chen, CFA, assesses the latest inflation figures in China.

Key Takeaways

“Headline inflation unexpectedly eased from its 2-year high as it fell to 2.5% y/y in Aug (Bloomberg est: 2.8% y/y, Jul: 2.7%) with food and non-food prices moderating. Core inflation (excluding food & energy) was unchanged from Jul at 0.8% y/y as domestic demand stayed weak amid expanding COVID lockdowns across cities.”

“Producer Price Index (PPI) dropped sharply to 2.3% y/y in Aug (Bloomberg est: 3.2% y/y, Jul: 4.2%). Weaker PPI was attributed to lower international oil and commodity prices as well as weak market demand in some domestic industries.”

“With CPI averaging just 1.9% y/y in Jan-Aug, we now expect full-year inflation at 2.2% instead of our earlier forecast of 2.5% (2021: 0.9%). We also lower our PPI forecast to average 4%-5% in 2022 compared to our earlier estimate of 5%-6% (2021: +8.1%).”

“We continue to see scope for further monetary policy easing, with the 1Y LPR to move lower to 3.55% by end-4Q22 (from current 3.65%). After 35 bps cut YTD, the 5Y rate is still poised to fall further (from current 4.30%) as PBoC extends support to the property market.”

Share: Feed news

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. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.