China Inflation Prints On Tap, Easing Bias Still The Focus

China's April inflation data prints today, with CPI and PPI on tap. Today's outcomes shouldn't shift the easy policy bias.

• Further moderation is expected in PPI 7.8% v 8.3% previously, while CPI is expected to firm to 1.8% from 1.5% last month (both in YoY terms).
• CPI was likely subjected to cross-current pressures in April. Covid related supply chain disruptions likely pushed food prices higher, but a lack of demand-side pressures likely limited price pressures for other goods.
• Core inflation pressures remain benign, sitting at 1.1% in March (YoY), edging down from the 1.3% seen late last year.

Fig 1: China CPI & PPI (YoY)

Source: MNI - Market News/Bloomberg

• PPI pressures are expected to ease. The monthly print may be firmer but YoY momentum should continue to moderate.
• PMI input price measures remain elevated but are off 2021 highs. The general trend in commodity prices also suggests downside risks, albeit around a volatile trend, but this may take a few months to materialize, see the second chart below.
• Note that wider expectations look for the PBoC's 1yr MLF rate to be cut to 2.80% from 2.85 later this month (with the latest round of MLF operations due any time from this coming Friday).

Fig 2: Commodity Prices Suggest PPI Pressures Can Ease

Source: MNI - Market News/Bloomberg