China: Inflation forecast to rebound strongly in H2 2021 – UOB

Chinese consumer prices are expected to gather strong traction in the second half of the year, in opinion of Economist at UOB Group Ho Woei Chen, CFA.

Key Quotes

“China’s headline Consumer Price Index (CPI) eased back to a decline of -0.3% y/y in January (Bloomberg: 0.0%, Dec: +0.2%). The dip in January’s inflation was mainly due to a high base of comparison. In January last year, inflation was running at 5.4% y/y, its highest since October 2011. Due to the distortion from base effect, month-on-month comparison was probably a better reflection of current supply and demand conditions. Led by both higher food (+4.1% m/m) and non-food prices (+0.3% m/m), CPI rose 1.0% m/m from December, an acceleration from 0.7% m/m price gain in the preceding month.”

“Producer Price Index (PPI) rose for the first time in a year, at 0.3% y/y in January (Bloomberg: +0.3%, Dec: -0.4%) alongside higher commodity prices. On a month-onmonth comparison, the PPI has continued to post gains of 1.0% in January (Dec: 1.1%).”

“We expect CPI to rise more strongly in the second half of the year to bring the annual CPI to 2.6% this year compared to 2.5% in 2020. The strength of the recovery is dependent on the energy price trajectory, the recovery in both global demand and the domestic services sector. Sustained strength in the commodity prices and demand recovery should see PPI turning positive in 2021 after declining in the last two years (2020: -1.8%).”