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CHINA
  • China inflation data will come out overnight (1.30 London time), with market expecting inflationary pressures to continue to ease.
  • PPI inflation is expected to decelerate to 9.5% YoY in January, down from 10.3% the previous month and down from a 26-year high of 13.5% reached in October 2021.
  • The sharp contraction in Chinese 'liquidity' (TSF 12M Sum) in 2021 has been pricing in a significant deceleration in inflation in the coming 9 to 12 months.
  • The chart below shows that China liquidity has strongly led PPI inflation by 9 months in the past 15 years.
  • We have previously seen that inflationary pressures have remained ‘low’ in numerous Asian/ SE Asian countries (relative to DM and CEEMEA/Latam economies) in the past 6 months (Philippines, Vietnam, Bangladesh, Indonesia).
  • In addition, PPI inflation in China has been decelerating faster than what market was expecting in recent months.
  • A faster deceleration in PPI inflation leaves more room for policy easing, which could continue to support domestic risky assets in the medium term.

Source: Bloomberg/MNI.

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