UOB Group economist Ho Woei Chen, CFA, evaluate the latest inflation figures in China.
Key points
“Headline inflation unexpectedly slowed from its two-year high, falling to 2.5% p.a. in August (Bloomberg estimate: 2.8% p.a., July: 2.7%), with food and non-food prices moderating. Core inflation (excluding food and energy) was unchanged from July at 0.8% yoy as domestic demand remained weak amid expanding COVID lockdowns in cities.”
“The producer price index (PPI) fell sharply to 2.3% yoy in August (Bloomberg est: 3.2% yoy, July: 4.2%). Weakness in the PPI was attributed to lower international prices of oil and raw materials, as well as weak market demand in some national industries.”
“With the CPI only averaging 1.9% y/y in January-August, we now expect full-year inflation to come in at 2.2%, rather than our previous forecast of 2.5% (2021: 0.9%). We also lower our PPI forecast to an average of 4%-5% in 2022 from our previous estimate of 5%-6% (2021: +8.1%).”
“We continue to see room for further monetary policy easing, with the one-year interest rate cut to 3.55% at the end of Q4 2022 (from 3.65% today). After a 35-point cut base year to date, the 5-year rate is still poised to decline further (from 4.30% today) as the PBoC extends support to the housing market.”
Source: Fx Street
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