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Economist at UOB Group Ho Woei Chen, CFA, reviews the latest results from Chinese Producer Prices.

Key Quotes

“Led by soaring commodity prices, China’s Producer Price Index (PPI) surged by 6.8% y/y in April (Bloomberg est: +6.5%; Mar: +4.4%), its highest since October 2017.”

“The Consumer Price Index (CPI) continued to edge higher in April by 0.9% y/y but this was lower than consensus forecast (Bloomberg est: +1.0%; Mar: +0.4%). Furthermore, the momentum has eased with CPI falling on a month-on-month basis for the second month by -0.3% in April compared to -0.5% in March. This suggests that the pass-through from higher producer prices has remained contained so far.”

“Year-to-date, the CPI and PPI averaged 0.2% y/y and 3.3% y/y respectively. While the passthrough from higher producer prices to consumer prices has been contained so far, this remains a key risk for China’s inflation outlook. Furthermore, the sustained strength in global food and energy prices may exert upward pressure on China’s CPI in the coming months as the domestic high base effect continues to fade. Nonetheless, the recovery in China’s consumer goods inflation should be positive on domestic demand outlook.”

“Taking into consideration of the data to date, we are revising our 2021 CPI forecast to 1.9% from 2.6% (2020: 2.5%) and PPI to 6.3% from 4%-5% (2020: -1.8%). We maintain our forecast for both the 1Y LPR and the 5Y & above LPR to be kept unchanged at 3.85% and 4.65% respectively for the rest of 2021.”

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