CPI Slows More Than Expected, PPI Back Into Deflationary Territory

China headline CPI came in weaker than expected, rising 2.1% y/y, against a 2.4% y/y expectation. Last month was 2.8% y/y. PPI dipped back into deflationary territory, down -1.3% y/y from last month's +0.9% outcome, but this was slightly better than market estimates (-1.5%).

• The headline miss for CPI was helped by food price pressures, where the y/y pace eased to 7.0%, from 8.8% last month. Non-food inflation moderated further though, back to 1.1% y/y, from 1.5% in September.
• Only 1 sub category saw firmer y/y momentum in the month, while the housing sub component fell -0.2%. Core inflation was unchanged at 0.60% y/y.
• The data is still arguing for easier financial conditions, although there is some stability in onshore yields, with the 2yr continuing to hold above 2%, see the first chart below.

Fig 1: China Core CPI Versus 2yr Government Bond Yield

Source: MNI - Market News/Bloomberg

• The PPI dip was not as bad as feared. Recent trends were generally maintained though, with mining and raw materials showing steep y/y drops. Manufacturing also fell to a fresh cyclical low of -3.5% y/y. The picture was slightly better in the consumer goods space.
• The second chart below is an update of this morning's one, highlighting the decelerating trends in the PPI and CNY NEER (J.P. Morgan Index).

Fig 2: China PPI Versus CNY NEER Y/Y

Source: J.P. Morgan/MNI - Market News/Bloomberg