China: Producer Prices extend the uptrend in August – UOB

Economist at UOB Group Ho Wei Chen, CFA, assesses the latest inflation figures in the Chinese economy.

Key Takeaways

“China’s Producer Price Index (PPI) inflation and Consumer Price Index (CPI) inflation diverged further in August. The PPI gains accelerated to 9.5% y/y from 9.0% y/y in July while CPI rose at a more subdued rate of 0.8% y/y compared to 1.0% y/y in July.”

“Commodity prices continued to drive the PPI gains but the COVID-19 infections in China have dampened consumption demand in August. For the PPI, the strong momentum and low base effect suggest that it is likely to top out only in October.”

“Overall, we see slight downside risk to our 2021 average CPI forecast of 1.1% while our PPI forecast of 7.5% remains on track.”

“We do not expect the PPI gains to hinder a slightly more accommodative monetary policy through another cut to the banks’ reserve requirement ratio (RRR) by year-end.”