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    China's inflation cools but producer prices gathering traction

    Consumer and business inflation continue to converge but the monthly read on CPI is beginning to weigh down on the YoY read. 

    At 2%, CPI data came in below the below the 2.3% consensus to see its largest monthly reduction since Oct '15 and now sits at its lowest rate since August '15. Falling food prices were the main drag on the headline figure, with vegetable price now within their 21st month of declines. Whilst pork prices, the main component of the inflation basket, remain high it is the overall slowing of food prices which helped inflation come in below expectation. 

    Given inflation is now moving in the wrong direction towards the government 3% target, increases the chances of further easing from policy makers, particularly if it crosses below 2% in the coming months. 

    At -0.5% the monthly read experienced its 3rd consecutive decline and at its fastest rate of contraction since March '15. This is now beginning to weigh down on the YoY read, so any signs of the monthly CPI expanding its rate of disinflation makes the cross below 2% for YoY only a matter of time. 

    Producer prices contracted -2.8% vs -3.4% previously and, whilst the contraction rate has not slowed as much as expected, does at least show a deceleration is underway. At -2.8% the contraction is now its slowest rate since November '14. 

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