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CPI Pressures Remain Benign, PPI Aided By Higher Commodities, Base Effects

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China May inflation data was close to expectations. Headline CPI rose 0.3% y/y, against a 0.4% forecast and 0.3% in April. The PPI was -1.4% y/y, against a -1.5% forecast and -2.5% prior.

  • The detail on the CPI still suggests quite a benign domestic price backdrop. In m/m terms prices fell 0.1%. Consumer good prices were flat in y/y terms, services were 0.8% y/y, unchanged from April. Goods price deflation has ended, but services prices are off the pace from the second half of 2023.
  • Core inflation (ex food and energy) was 0.6% y/y, down slightly from April's 0.7% pace. The trend remains benign, albeit up from recent lows. The chart below overlays the 10yr CGB yield against core CPI y/y.
  • In terms of the sub categories, we saw drags from food and transport. The main positives were clothing, recreation and the other segment. Only one category saw a pick up in y/y pace versus the April outcome, which was food, but it remained negative in an outright sense.

Fig 1: China Core CPI Y/Y Versus 10yr CGB Yield

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China May inflation data was close to expectations. Headline CPI rose 0.3% y/y, against a 0.4% forecast and 0.3% in April. The PPI was -1.4% y/y, against a -1.5% forecast and -2.5% prior.

  • The detail on the CPI still suggests quite a benign domestic price backdrop. In m/m terms prices fell 0.1%. Consumer good prices were flat in y/y terms, services were 0.8% y/y, unchanged from April. Goods price deflation has ended, but services prices are off the pace from the second half of 2023.
  • Core inflation (ex food and energy) was 0.6% y/y, down slightly from April's 0.7% pace. The trend remains benign, albeit up from recent lows. The chart below overlays the 10yr CGB yield against core CPI y/y.
  • In terms of the sub categories, we saw drags from food and transport. The main positives were clothing, recreation and the other segment. Only one category saw a pick up in y/y pace versus the April outcome, which was food, but it remained negative in an outright sense.

Fig 1: China Core CPI Y/Y Versus 10yr CGB Yield

Keep reading...Show less