Ho Woei Chen, a CFA economist with UOB Group, offers his thoughts on the publication of China inflation data.
China inflation Major Takeaways
China has little inflation because of its poor domestic demand and declining industry pricing. Given the heightened risks associated with local government debt, this supports the case for more central government policy assistance as well as further central bank monetary policy easing.
Any extra stimulus measures, however, could fall short of expectations given that the Chinese economy is probably still on track to meet the stated goal of “around 5.0%” this year. However, we do not anticipate further lowering of the benchmark rates this year.
Instead, we retain our assumption of greater property support measures and our demand for further drop in banks’ reserve requirement ratio (RRR) in 2H23. Overall, in 1H23, PPI averaged -3.1% y/y while both headline and core inflation averaged 0.7% y/y.
We maintain 0.8% annual headline inflation (2022: 2.0%) and -2.0% annual PPI (2022: 4.1%). CPI and PPI still carry a negative risk.
