China: Inflation still seen below 3% in the next months – UOB
17.10.2022, 09:24

China: Inflation still seen below 3% in the next months – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest inflation figures release in the Chinese economy.

Key Takeaways

“Inflation has remained moderate in China with lower non-food inflation offsetting higher food inflation in Sep. CPI inflation is expected to continue to print below 3% y/y in the next few months.”

“Headline CPI had averaged 2.0% y/y in 1Q-3Q and the full-year 2022 inflation remains on track for 2.2% (2021: 0.9%). We also maintain our forecast for inflation to head higher to 2.8% in 2023 given some expected recovery in domestic demand next year.”

“China’s PPI registered another large drop to 0.9% y/y in Sep as the fall in international crude oil prices and bulk commodities prices drove down the prices of domestic related industries. Weaker PPI is seen weighing on industrial profits in China which had already fallen into year-to-date decline by Jul and this could worsen as global demand weakens.”

“PPI inflation averaged 5.9% y/y in 1Q-3Q. Looking ahead, we expect PPI to fall into negative territory in Oct while full-year PPI is expected within 4.0-4.5% for 2022 (2021: +8.1%).”

“Inflation is relatively muted in China compared to other major economies, giving rise to some room for China’s monetary policy to further diverge from that of the US and Europe. With the increasing growth headwinds in China, the People’s Bank of China (PBoC) will need to maintain an accommodative monetary policy and a proactive fiscal policy to support the recovery.”

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