China: Housing Supports CPI Inflation; Subsiding PPI Deflation - ING
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 2015 base effects won’t kick in until early 2017.
PPI
developments lessen the urgency of PBOC policy interest rate cuts,
though in line with the consensus we forecast a 25bp cut in the current
quarter.”
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