China: PPI inflation rebounds in April – Nomura

Analysts at Nomura note that China’s producer price index (PPI) inflation rebounded by 0.3 percentage points (pp) to 3.4% y-o-y in April, in line with expectations (Consensus and Nomura: 3.4%).

Key Quotes

“The rebound was driven by upstream sectors, benefiting from a low base last year. PPI inflation in the mining sector ticked up 1.1pp to 6.1% y-o-y, while in raw materials and processing it rose 0.6pp and 0.2pp, respectively. On a month-on-month basis, PPI inflation remained at -0.2% in April.”

“Consumer price index (CPI) inflation continued to soften, down 0.3pp to a weaker-than-expected 1.8% y-o-y in April (Consensus and Nomura: 1.9%). In month-on-month terms, CPI inflation edged up 0.9pp to -0.2% in April. The drop in CPI inflation was mainly due to falling food price inflation, which was 1.4pp lower, at 0.7% y-o-y in April while non-food price inflation remained unchanged at 2.1% y-o-y. Notably, pork price inflation fell further to -16.1% y-o-y, but this could turn around in coming quarters. The ratio of hog-to-corn price fell below the breakeven mark of 6x in March, which is likely to discourage production and could lead to a future supply shortage and spike in prices.”

“We expect PPI inflation to rise modestly in Q2 on favourable base effects, but the downtrend to resume in H2 2018 as already high financing costs and a cooling property market may dampen domestic investment demand. That said, sustained higher oil prices could pose some upside risk to our forecast of a measured moderation in PPI inflation. For CPI inflation, we expect a mild pick-up through 2018, mainly driven by the potential for higher food prices, high services prices, and the pass-through of high producer and property prices.”