China: Inflation accelerated in April – UOB

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

Key Takeaways

“China’s headline CPI rose at a faster than expected pace, by 2.1% y/y (Bloomberg est: 1.8% y/y, Mar: 1.5% y/y), to a 5-month high in Apr. Higher fresh food prices due to domestic COVID-19 disruption and increases in fuel costs more than offset the negative impact on services and consumption demand. Compared to the previous month, CPI was up 0.4% m/m after staying flat in Mar.”

“China’s Producer Price Index (PPI) moderated to 8.0% y/y in Apr (Bloomberg est: 7.8% y/y, Mar: 8.3% y/y) due to the high comparison base but this was still above consensus expectation. The sequential gains indicated the presence of cost pressures on producers as PPI rose for the third consecutive month, by 0.6% m/m in Apr (Mar: 1.1% m/m).”

“We maintain our full-year 2022 inflation forecast at 2.9% (2021: 0.9%). The full-year PPI is likely to come in at the higher end of our 5%-6% forecast (2021: +8.1%).”

“Demand-side inflationary pressure has eased in Apr as seen in the moderation of China’s core CPI. The PBoC could reduce its 1-year medium-term lending facility (MLF) rate this month (13-16 May) by 5-10 bps as it increases growth support. We maintain our forecast for the benchmark 1Y loan prime rate (LPR) to fall to 3.55% by the end of 2Q/3Q 2022.”