China: Inflation lost further traction in March – UOB

Ho Woei Chen, Economist at UOB Group, assesses the release of the latest inflation figures in China.

Key Takeaways

“Headline inflation slowed to 0.7% y/y in Mar, the lowest since Sep 2021 when it was at the same level. However, core inflation (excluding food & energy) edged marginally higher to 0.7% y/y from 0.6% y/y in Feb.”

“Overall, headline and core inflation averaged 1.3% y/y and 0.8% y/y respectively in 1Q23. Given the weak price pressure to-date, we will revise our full-year headline inflation forecast lower to 2.0% from 2.8%. This will be similar to the inflation rate in 2022.”

“China’s Producer Price Index (PPI) declined y/y for the sixth consecutive month due to the high base of comparison but was flat on a sequential basis for the second straight month which may suggest the stabilization of the domestic economy.”

“PPI decline averaged -1.6% y/y in 1Q23. We retain our forecast that PPI will remain in deflation through 1H23 and average -1.0% in 2023 after rising 4.1% in 2022 and 8.1% in 2021.”

“The inflation data continues to indicate weak demand pressure in China that is consistent with PBoC’s accommodative monetary policy stance and calls for continued fiscal support.”