China: Benign inflation will not constrain Beijing’s policy easing agenda – Nomura

Analysts at Nomura point out that China’s consumer price index (CPI) inflation stabilised at 2.5% y-o-y in October, unchanged from September, as the moderation of food price inflation – driven by falling vegetable prices – fully offset the rise in non-food price inflation.

Key Quotes

“Producer price index (PPI) inflation fell further to 3.3% y-o-y from 3.6%, mainly due to a high base last year and the continued weakening of domestic demand.”

“We maintain our forecast for a mild rise in annual CPI inflation to 2.1% in 2018 from 1.6% in 2017 and believe contained inflation will not affect Beijing’s policy easing agenda.”

“In our view, investors should keep an eye on developments around African swine fever (ASF), but 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 expect the downtrend in PPI inflation to continue in a milder manner through winter given a less severe anti-pollution campaign this year compared to last.”