China Economics

China Inflation Tracker

CPI inflation is likely to edge down in January: On
the basis of the weekly MoCom data released for Jan
16- Jan 22, we reduce our January CPI inflation forecast to +1.8% YoY (vs +2.1% YoY last week). This downward revision is mainly the result of the weakness of food inflation, which has slipped to +3.7% YoY (vs +5.1% YoY the previous week). PPI inflation was +4.6% YoY; +1.0% MoM, thus non-food inflation merely inched up a marginal 0.1 ppt, to +0.7% YoY.

Hiking prices of food products: The edible agriculture
products price index rose +0.4% WoW. Vegetable
prices jumped +2.8% WoW, having been muted in the
previous week (Exhibit 9). Prices of grain, fruit and
aquatic products gained +0.2%, +0.6% and +0.5% WoW, respectively; edible oil and eggs were flat. Meat prices, the powerhouse of 2008’s high food inflation, weakened for the third week running (-0.5% WoW) (Exhibit 5).

Producer product prices soften: (-0.2% WoW). The weakness was broad-based (the exceptions being rubber products, +0.4% WoW, and light industrial products, +0.2% WoW) (Exhibit 15). Mineral products corrected 1.2% after several weeks of rises (Exhibit 11), while ferrous (-0.9% WoW) and non-ferrous metals (-0.5% WoW) also contributed to the overall weakness.

Trend within January: against the backdrop of the explosive loan growth in January (Rmb1.45tn of new loans by Jan 19), we believe a policy shift may be seen earlier than we had been expecting as the monetary authority is increasingly worried about the pick-up inflation. However, given the growing sophistication of the PBoC’s application of the monetary tools, which in turn help to contain inflation expectations, we believe headline inflation should remain under control.