China: Housing supports CPI inflation; subsiding PPI deflation – ING

By FXStreet Tim Condon, Chief Economist at ING, suggests that the evidence of demand-side CPI pressure and narrowing PPI deflation lessen the case for PBOC rate cuts.

Key Quotes

“In line with the consensus we forecast a 25bp cut in the current quarter.

March’s 2.3% YoY CPI inflation was unchanged from February despite faster food component inflation (7.6%, up from 7.3% in February) and unchanged 1.0% non-food inflation. The acceleration in food component inflation was despite a large sequential drop.

Core inflation accelerated to 1.5% from 1.3% on larger increases in the health and education and recreation components. Housing component inflation was unchanged at1.3% but the seasonal 0.9% March sequential increase was the largest in three years. Higher housing component inflation is the principal non-food component contributing to higher headline inflation in 2016 (INGF 2.0 from 1.4% in 2015).

PPI deflation narrowed, again, to -4.3% from -4.9% largely on a deceleration of manufacturing products component deflation (to -3.6% YoY from -4.5%). The +0.5% MoM change in headline PPI was first positive print since September 2013. Continued sequential gains of that magnitude could see deflation narrow by a full percentage point this year despite the fact that due to the large sequential declines at the end of …read more

Source:: FX Street