China: Inflation expected to edge higher – UOB

Economist Ho Woei Chen, CFA, at UOB Group, gives her opinions on the uptick in Chinese consumer prices.

Key Quotes

“China’s January Consumer Price Index (CPI) rose at its largest pace since October 2011 at 5.4% y/y which was attributed to the Lunar New Year, outbreak of 2019-nCov and a lower base of comparison last year.”

“In January, the main driver of CPI was again pork prices which rose 116.0% y/y, up from 97.0% y/y in December. This is a record high monthly gain since data was available in 2005… Overall, core CPI (excluding food and energy) crept higher to 1.5% y/y in January from 1.4% y/y in the two preceding months.”

“Although the higher inflation in January was mainly due to the Lunar New Year demand, we expect price pressure to remain to the upside in the near-term due to the 2019-nCov outbreak which has led to supply constraints and higher transport costs in parts of the country.”

“We could see higher inflation in the near-term, depending on how the 2019-nCov outbreak pans out and the extent of recovery in consumer demand thereafter. Our full-year 2020 inflation forecast is at 2.6% (2019: 2.9%) which we will review at a later date. Meanwhile, the negative growth risks in China could weigh on the PPI recovery.”