China: CPI inflation continued to rise – Nomura

Analysts at Nomura note that China’s consumer price index (CPI) inflation ticked higher by 0.2 percentage points (pp) to 2.5% yo-y in September, while producer price index (PPI) inflation fell further by a significant 0.5pp to 3.6%, both in line with market consensus.

Key Quotes

“The rise in CPI inflation was mainly driven by higher vegetable and pork price inflation which we estimate added ~0.25pp and ~0.06pp, respectively, to the headline number, more than offsetting a moderation in nonfood price inflation.”

“The fall in PPI inflation was due to a high base last year and the continued weakening of domestic demand. We believe that investors should keep an eye on developments around African swine fever (ASF), but that the risks to headline inflation from other factors – floods in Shouguang city, sky-rocketing rents in Beijing, RMB depreciation and escalating China-US trade tensions – are overdone.”

“We maintain our call for a mild rise in CPI inflation to 2.1% in 2018 from 1.6% in 2017.”

“We expect CPI inflation to moderate over the next couple of months as vegetable prices normalise.”