CPI & PPI On Tap Tomorrow, Consumer Inflation Expected To Tick Higher

A reminder that China CPI and PPI for January print tomorrow. The market expects a 2.1% Y/Y for CPI, versus 1.8% prior. Note the range of forecasts is 1.9-2.7% for CPI. For the PPI, we are expected to remain in deflation at -0.5% Y/Y (prior -0.7%, while the forecast range is -0.1% to -1.0%).

• There is likely to be more focus on CPI trends. Outside of food prices, domestic price pressures have been benign owing to a weak domestic demand backdrop. China core inflation ran comfortably below 1% y/y through the second half of last year.
• These trends likely started to change in January amid reports of stronger spending and recreational activity, particularly over the LNY period.
• So, the market may look at these trends for a sign of how firm domestic demand was in the first month of the year.
• It may also be a factor in thinking about any further easing steps from the authorities. A prominent China economist was on the wires today stating policy rates could be lowered in Q2 (see this link for more details).
• For PPI we are expected to remain in deflation, with China related commodity prices divergent in the first month of the year.