Inflation Outcomes Likely To See Easing Expectations Persist

China headline inflation results were weaker for both CPI and PPI. Headline CPI printed at 0.1% y/y, versus 0.3% forecast and 0.7% prior. Base effects from 2022 weren't favorable, still this is the softest headline inflation outcome since early 2021. This was also the third straight month of m/m falls. At face value, this doesn't give a sense of a robust domestic demand backdrop.

• Non-food inflation was a benign 0.1% y/y, although core (ex food and energy) was unchanged on Mar levels at 0.7% y/y. The first chart below plots the core measures against the 10yr government bond yield.
• The other detail was mixed, with transport -3.3%y/y (prior -1.9%) offset by firmer recreation at 1.9% (1.4% prior) and the others category (+3.5%, prior 2.5%).

Fig 1: China Core Inflation Versus 10yr Bond Yield

Source: MNI- Market News/Bloomberg

• For the PPI, we came in at -3.6% y/y, versus -3.3% forecast and -2.5% prior. Weakness was broad based, with manufacturing at -3.6% y/y, -2.8% prior. Consumer goods were 1.0% y/y (from 2.0%), weighed by durables at -0.6% y/y. Mining slipped to -8.5% y/y from -4.7%.
• The chart below overlays the CNY NEER versus the PPI y/y, which is pushed forward 6 months. The weaker PPI trend is consistent with a softer NEER backdrop. Note the CNY NEER has slipped to multi-month lows in recent sessions (per the J.P. Morgan index).

Fig 2: China PPI & CNY NEER

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