9 May 2016
China: April CPI and PPI data preview – ING
Tim Condon, Chief Economist at ING, suggests that the narrower PPI deflation lessens the urgency of PBOC policy interest rate cuts.
Key Quotes
“April CPI and WPI data are due tomorrow at 9.30am local time. The consensus forecast for CPI inflation is 2.3% YoY (prior 2.3%). The forecast for WPI inflation is -3.7% (prior - 4.3%). Supply disruptions due to severe winter weather made this year’s January- February food component spike far larger than the usual Lunar New Year bounce and we expect the food component will keep headline CPI inflation elevated until base effects kick in in early 2017. We reiterate our 2.0% CPI inflation forecast for 2016 (consensus 2.0%).
We think the consensus forecast of a sharp slowdown in PPI deflation rests on the 7.0% monthly bounce (average) in global oil prices working through the mining and quarrying component and another sequential increase in the manufacturing component, whose 0.5% rise in March was the first since September 2013. Continued sequential gains like that could see PPI deflation narrow by a full percentage point this year.
Narrower PPI deflation lessens the urgency of PBOC policy interest rate cuts. We are reviewing our forecast of two 25bp PBOC policy rate cuts in the rest of the year (Bloomberg consensus is one 25bp cut).”
Key Quotes
“April CPI and WPI data are due tomorrow at 9.30am local time. The consensus forecast for CPI inflation is 2.3% YoY (prior 2.3%). The forecast for WPI inflation is -3.7% (prior - 4.3%). Supply disruptions due to severe winter weather made this year’s January- February food component spike far larger than the usual Lunar New Year bounce and we expect the food component will keep headline CPI inflation elevated until base effects kick in in early 2017. We reiterate our 2.0% CPI inflation forecast for 2016 (consensus 2.0%).
We think the consensus forecast of a sharp slowdown in PPI deflation rests on the 7.0% monthly bounce (average) in global oil prices working through the mining and quarrying component and another sequential increase in the manufacturing component, whose 0.5% rise in March was the first since September 2013. Continued sequential gains like that could see PPI deflation narrow by a full percentage point this year.
Narrower PPI deflation lessens the urgency of PBOC policy interest rate cuts. We are reviewing our forecast of two 25bp PBOC policy rate cuts in the rest of the year (Bloomberg consensus is one 25bp cut).”