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Analysts at Nomura note that the gap between PPI and CPI inflation continued to widen in June as the producer price index (PPI) inflation rose to 4.7% y-o-y in June from 4.1% in May, while CPI inflation ticked up to 1.9% from 1.8%.

Key Quotes

“Rising oil prices (Brent up 64% y-o-y in June from 55% in May) contributed to the rise in both PPI and CPI inflation.”

“Looking ahead, we expect PPI inflation to fall in H2 on a high base in H2 2017, a stable oil price and weakening end-demand, and CPI inflation to stay at a subdued ~2% as household purchasing power is weighed on by a rising debt burden.”

“Though the trade conflict with the US might add some upward pressure on CPI inflation, we believe the government is likely to introduce special measures such as returning the charged 25% tariffs on some agricultural products to importers.”

“We maintain our call of low inflation risk this year and expect Beijing to introduce more policy easing measures to arrest the growth slowdown and soothe volatile markets.”