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Economist at UOB Group Ho Woei Chen, CFA, suggests the inflation figures in China could slip back to the negative territory early in 2021.

Key Quotes

“China’s headline Consumer Price Index (CPI) rebounded to 0.2% y/y in December (Bloomberg: 0.0%, Nov: -0.5%) from its first decline since 2009 in November. This was mainly led by seasonal demand and adverse weather conditions contributing to higher costs. However, the demand-side price pressure has remained subdued with core inflation edging marginally lower to 0.4% y/y in December after staying at 0.5% y/y in the five preceding months.”

“Producer Price Index (PPI) deflation eased sharply to -0.4% y/y in December (Bloomberg: – 0.7%, Nov: -1.5%) as costs of raw materials including energy were broadly higher amidst power disruptions in more than a dozen Chinese cities during the month… On a month-on-month comparison, the PPI rose by the sharpest pace since December 2016, at 1.1%, up from 0.5% in November.”

“In 2020, China’s CPI and PPI averaged 2.5% (2019: 2.9%) and -1.8% (2019: -0.3%) respectively. We see possibility for the CPI to dip into the negative again in January and February due to the high base of comparison before rebounding strongly in the second half of the year to bring the annual CPI to 2.5-3.0% this year.”