J.P. Morgan Post China Inflation Update

The US Bank states that yesterday's CPI update points to modest domestic consumption activity, with the labor market, household income and spending likely to take time to show meaningfully improving trends. See below for more details:

J.P. Morgan: "What is more concerning is the softer core CPI in October. After stabilizing at 0.8%oya throughout 3Q23, core CPI inflation slowed to 0.6%oya in October. Core CPI also recorded the first sequential decline in eight months, falling 0.1%m/m sa. Following modest recovery during the summer vacation months, pricing in the re-opening related sectors seems to have lost momentum in October, despite the Golden Week holiday at the beginning of the month. Prices for recreational, educational and cultural services stayed flat at 0.0% m/m sa in October, after the 0.4% monthly average gain in 3Q23. Meanwhile, the price trend for other major core CPI items remained rather soft, as prices of household facilities and articles, medicine and medical care, clothing and residence costs all consistently stayed flat (0.0% m/m sa). The modest easing in core CPI suggests domestic consumption may have remained weak after the short-term boost during the summer holidays."

"The latest fiscal policy move will lend support to infrastructure investment into the year-end and early next year, and has prompted us to revise up our 2024 growth forecast. However, the continued policy focus on investment and supply side suggests the domestic demand-supply imbalance may be intensified. In this sense, domestic deflationary concerns, especially on the consumer side may continue, if a policy shift or stepped-up policy support to households continues to be absent. It will also take time for the labor market, household income and hence consumer spending to show solid recovery. A low base may help bring headline CPI inflation back to positive territory into year-end, though marginally. We expect CPI inflation to average at 0.0%oya in 4Q, with full-year CPI inflation rate average at 0.2%y/y."