Food Drags Headline CPI Lower, PPI Trend Improves Modestly

China September inflation prints were a touch weaker than expected. Headline CPI printed at flat in y/y terms, versus a 0.2% forecast and 0.1% prior. Core CPI was steady at 0.8% y/y. The PPI was -2.5% y/y, against a -2.4% forecast and -3.0% prior.

• For CPI this was towards the bottom end of estimates, although the lowest forecast was -0.1% y/y. The m/m rise was 0.2%for headline, down slightly from the August pace of 0.3%, but still above the average pace seen in the first half of 2023.
• Consumer goods inflation was -0.9% y/y, while services held steady at 1.3% y/y. Non-food inflation rose to 0.7% y/y, from 0.5% in August. The drag from food got larger, -3.2% y/y from -1.7%.
• Outside of food, we saw either the same y/y print or slight improvement in terms of the sub-categories. Household items and transport saw reduced disinflation. Hence outside of the drag from food the result is not that weak, which is consistent with core inflation holding steady at 0.8% y/y.

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

Source: MNI - Market News/Bloomberg

• On the PPI saw we saw modest further improvement in the headline, led by less drags from the mining sector (-7.4% y/y, from -9.9%) and raw materials (-2.8% y/y from -4.0%). This is consistent with improved commodity prices, although that trend has stabilized somewhat in recent weeks.
• Manufacturing was -2.8% y/y (from 3.1% y/y), but consumer goods dipped slightly further to -0.3%y/y (-0.2% prior), led by durables -1.2% y/y.
• Still, less negative PPI momentum y/y is consistent with a modestly improving CNY NEER trend, see the second chart below.

Fig 2: China PPI Y/Y Versus J.P. Morgan CNY NEER (Y/Y)

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