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.
“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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