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Inflation Data Continues To Argue For Easier Financial Conditions

CHINA DATA

China headline inflation printed slightly below expectations, 2.8% y/y, versus 2.9% expected. It was still firmer than last month (2.5% y/y in August). Outside of food price momentum was soft though. Food inflation rose 8.8% y/y, (6.1% prior), while non-food was up just 1.5% (1.7% prior). A core inflation measure (ex food and energy) was up just 0.6% y/y, the softest pace since March 2021. The chart below overlays this measure against the 2yr government bond yield.

  • Only 2 sub categories recorded y/y rises (food and household items, albeit just for this latter category (1.4% versus 1.3% last month). The 6 other sub categories were either down or the same in y/y terms as last month.

Fig 1: China Core CPI & 2yr Government Bond Yields


Source: MNI - Market News/Bloomberg

  • For the PPI, it fell by -0.1% m/m, bringing the y/y pace sub 1% (0.9%), which was slightly weaker than expected. The chart below overlays the headline PPI y/y (pushed forward by 6 months) against the CNY NEER y/y (sourced from J.P. Morgan).
  • Waning PPI momentum continues to point to less need for elevated NEER levels.
  • The PPI decline was led by further down shifts in mining and raw materials upstream price pressures, although manufacturing, -1.9% y/y, and durable goods -0.6% y/y, were other soft points.

Fig 2: J.P. Morgan CNY NEER Y/Y Versus Headline PPI Y/Y

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

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