Analysts at Standard Chartered point out that China’s headline CPI inflation rose to 2.7% y/y in May (versus 1.9% at end-2018), averaging 2.1% in January-May 2019, slightly higher than 2.0% in January-May 2018.
Key Quotes
“We attribute the rise in CPI inflation almost entirely to higher food inflation.”
“We raise our 2019 CPI inflation forecast to 2.5% y/y from 2.0% previously, as we expect food inflation to accelerate to 6.2% this year, compared with 1.8% in 2018. The swine fever breakout since August 2018 and bad weather have cut pork, fresh vegetable and fruit supplies, resulting in their prices rising 18% y/y, 13% y/y and 27% y/y respectively in May, versus -2%, +4% and +9% recorded in December 2018.”
“By contrast, core CPI inflation (ex food and energy) tracked moderating economic growth, falling to 1.6% y/y in May (versus 1.8% at end-2018). We expect core CPI inflation to average 1.6% in 2019, compared to 1.9% in 2018 and 2.2% in 2017.”
“With core CPI inflation still subdued and intensifying US-China trade tensions posing downside risks, we expect the People’s Bank of China (PBoC) to maintain a pro-growth pivot in monetary policy despite rising headline CPI inflation.”
“We expect additional cuts of 100bps to the reserve requirement ratio (RRR) for the rest of the year. The PBoC is also likely to lower the medium-term lending facility (MLF) rate.”
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