China: Strong print from Producer Prices – UOB

Economist at UOB. Group Ho Woei Chen, CFA, evaluates the latest Producer Prices results in the Chinese economy.

Key Quotes

“Producer Price Index (PPI) surprised on the upside at 4.4% y/y in March (Bloomberg est: 3.6%; Feb: 1.7%). This was the highest since July 2018 as PPI emerged from 1 ½ years of deflation since the start of the year. On a month-on-month comparison, PPI has continued to post gains at 1.6% in March compared to 0.8% in February.”

“As expected, the Consumer Price Index (CPI) rebounded into positive territory from two preceding months of decline, albeit at a muted 0.4% y/y in March (Bloomberg est: +0.3%; Feb: -0.2%). On a month-on-month comparison, CPI fell 0.5% in March vs. +0.6% in February, its first decline in four months.”

“Overall, in 1Q21, the CPI and PPI averaged 0.0% y/y and 2.1% y/y respectively. We expect PPI to continue to accelerate in 2Q21, supported by a low base, higher raw material prices and recovering demand. But the PPI gains should moderate in the second half of the year. Meanwhile, CPI gains will pick up as the high base effect from food prices fade off. We maintain our full-year 2021 CPI forecast at 2.6% (2020: 2.5%) and expect PPI to average 4- 5% (2020: -1.8%) this year.”