China: Rebound in inflation seen as temporary – UOB

UOB Group’s Economist Ho Woei Chen, CFA, gives her opinion on the latest set of inflation figures in the Chinese economy.

Key Quotes

“China’s Consumer Price Index (CPI) rose 2.7% y/y in July... This was led by higher food price inflation while core inflation (excluding food and energy) slipped further to 0.5% y/y from 0.9% in June, indicating that demand remains weak.”

“Producer Price Index (PPI) deflation eased to -2.4% y/y in July from -3.0% y/y in June... PPI has been in the negative in 12 out of 13 months to July.”

“Year-to-date, China’s CPI was up 3.7% y/y. The pick-up in July headline CPI is unlikely to be sustained in coming months due to still weak demand conditions and the high base of comparison in 2019 while high pork prices and weather-induced increase in food prices are expected to ease. We now expect full-year CPI inflation at 3.1% compared to our earlier forecast of 3.5%.”

“Weak price pressures will maintain room for accommodative monetary policy but further easing will be limited given recovery in the macroeconomic data.”