China: Inflation data points to further easing of deflationary pressures – Danske Bank

After today’s inflation data from China, analysts from Danske Bank, see overall deflationary pressures easing at the moment. They expect this to continue in coming quarters.

Key Quotes: 

“Chinese CPI inflation rose more strongly than expected to 1.9% y/y in September (consensus: 1.6% y/y, previous: 1.3% y/y). The increase was due partly to higher food price inflation but inflation excluding food also increased from 1.4% y/y to 1.6% y/y. It has been trending higher since it hit a bottom in early 2015 at 0.6% y/y. However, it is still far below the government’s target of 3%.”

“Producer price inflation also surprised to the upside and left deflation territory for the first time since 2011. It has been our view since spring though that PPI deflation would end as higher commodity prices would push up producer prices.”

“Overall deflationary pressures are easing in China at the moment. We expect this to continue in coming quarters. However, as we see the recovery losing some steam in 2017, deflationary pressures could return at some point next year.”

“We expect monetary policy to be on hold for now but look for renewed easing in 2017 as growth tapers off again. The risk to our view is that China is increasingly using regional measures to control the housing market as there is a very large dispersion across the country.”


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