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Headline CPI Ticks Down To 0.2% Y/Y, PPI In Line

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China CPI pressures continued to paint a fairly benign domestic backdrop (likewise in terms of the PPI detail). Headline CPI was +0.2% y/y, sub the consensus +0.4% projected and against a +0.3% outcome in May. For the month the CPI was down 0.2% m/m.

  • In terms of the detail, consumer goods fell -0.1% y/y, versus flat in May, while services prices eased to +0.7%y/y from 0.8% prior. Food prices eased -2.1% y/y, while non-food were unchanged at +0.8% y/y. Core inflation (ex food and energy) was 0.6% y/y, unchanged from the May outcome.
  • By category, trends were little different from the May outcome in y/y terms. Food -1.1% y/y and Transport -0.3%y/y, the main negatives, while other +4.0% y/y and recreation +1.7% (along with clothing and medical) were the main positives.
  • There is scope for improved y/y headline CPI as we progress through the second half, as base effects become more favorable. Still, the broader trends don't suggest a domestic economy that is re-accelerating sharply.
  • The chart below overlays the core CPI y/y against the 10yr bond yield, which has become a strong focus point for the PBoC, as it sees the bond yield diverging from longer term fundamentals.
  • On the PPI side, the -0.8% y/y print was in line with forecasts and compares with a -1.4% outcome in May. The improvement reflects higher mining and raw materials prices, which are both comfortably back in positive y/y terms.
  • Other PPI components were mostly softer, manufacturing -2.0% y/y, while consumer durables were -2.1% y/y (versus -1.8% in May).

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

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China CPI pressures continued to paint a fairly benign domestic backdrop (likewise in terms of the PPI detail). Headline CPI was +0.2% y/y, sub the consensus +0.4% projected and against a +0.3% outcome in May. For the month the CPI was down 0.2% m/m.

  • In terms of the detail, consumer goods fell -0.1% y/y, versus flat in May, while services prices eased to +0.7%y/y from 0.8% prior. Food prices eased -2.1% y/y, while non-food were unchanged at +0.8% y/y. Core inflation (ex food and energy) was 0.6% y/y, unchanged from the May outcome.
  • By category, trends were little different from the May outcome in y/y terms. Food -1.1% y/y and Transport -0.3%y/y, the main negatives, while other +4.0% y/y and recreation +1.7% (along with clothing and medical) were the main positives.
  • There is scope for improved y/y headline CPI as we progress through the second half, as base effects become more favorable. Still, the broader trends don't suggest a domestic economy that is re-accelerating sharply.
  • The chart below overlays the core CPI y/y against the 10yr bond yield, which has become a strong focus point for the PBoC, as it sees the bond yield diverging from longer term fundamentals.
  • On the PPI side, the -0.8% y/y print was in line with forecasts and compares with a -1.4% outcome in May. The improvement reflects higher mining and raw materials prices, which are both comfortably back in positive y/y terms.
  • Other PPI components were mostly softer, manufacturing -2.0% y/y, while consumer durables were -2.1% y/y (versus -1.8% in May).

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

Keep reading...Show less