China: Weak CPI opens the door to extra PBoC easing – UOB

UOB Group’s Economist Ho Woei Chen, CFA, assessed the latest inflation figures in China and prospects of further easing by the PBoC in the next months.

Key Quotes

“Both China’s Consumer Price Index (CPI) and Producer Price Index (PPI) eased off sharply in April… The decline in price pressure reflects lower commodity prices, weaker consumer demand as well as a moderation in food prices in particular pork prices in China. The key policy implication is clearly the need for the government to continue with its counter-cyclical measures.”

“The easing momentum in prices is evident as the sharp pressure on food prices starts to come off. CPI inflation fell on a month-on-month basis for the second straight month, down 0.9% from March with food prices down 3.0% m/m and pork prices down 7.6% m/m.”

“The deflation in PPI accelerated in April to the sharpest monthly drop in four years, led by the decline in prices of commodities and raw materials.”

The easing inflation will create room for more monetary policy easing ahead as signalled in the PBoC’s Monetary Policy Implementation Report for 1Q20.”

Posted in FX