China: Inflation accelerates in January – ING

By FXStreet Tim Condon, Chief Economist at ING, suggests that in China deep PPI deflation squeezes business cash flows and calls for lower interest rates and they forecast 50bp of PBOC policy rate cuts in 2016.

Key Quotes

“Key CPI food subcomponents spiked for a second consecutive month, including pork, up 2.5% MoM, fresh vegetables (7.2%) and fresh fruits (10.8%), accelerating year-over-year food component inflation to 3.6% from 2.7% in December. The food component was mostly responsible for the increase in headline inflation to 1.8% from 1.6% but non-food CPI inflation rose to 1.2% from 1.1%. Core inflation was unchanged at 1.5%.

Despite the 17% MoM fall in the average global oil price (Brent) in January, PPI deflation narrowed to -5.3% in January from -5.9% in December. We expect the deep – around 5% – PPI deflation to persist until global oil prices stabilize long enough that a low-base effect kicks in, which would be toward the end of the year if prices stabilize today. We expect the low-base effect to return PPI deflation to the 2-3% range it averaged from 2012 to mid-2014.

CPI inflation slowed to 1.4% in 2015 from 2.0% in 2014 due to the energy price crash. The absence of …read more

Source:: FX Street