- Chinese CPI and PPI data arrived in line with expectations.
- Infrastructure spending in China is the key driver here.
The inflation will likely have less attention paid to it by markets following the news China would allow local governments to use proceeds from special bonds for major investment projects, including highways, gas and power supply and railways, which would help prop up a slowing economy. Thus, further support for infrastructure spending in China is the key driver here.
Nevertheless, May consumer and producer prices have arrived, vs a median forecast is 2.7%yr on CPI and 0.6%yr on PPI. The data comes as follows:
- CPI year on year: 2.7% vs 2.7% expected and 2.5% prior.
- CPI month on month: 0.0% vs 0.0% expected and 0.1% prior.
- PPI year on year: 0.6% vs 0.6% expected and 0.9% prior.
About The Consumer Price Index
The Consumer Price Index is released by the National Bureau of Statistics of China. It is a measure of retail price variations within a representative basket of goods and services. The result is a comprehensive summary of the results extracted from the urban consumer price index and rural consumer price index. The purchase power of the CNY is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A substantial consumer price index increase would indicate that inflation has become a destabilizing factor in the economy, potentially prompting The People’s Bank of China to tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, while a low reading is seen as negative (or Bearish) for the CNY.
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