China: Producer Prices accelerates the upside – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest Producer Prices release in the Chinese economy.

Key Quotes

“China’s Producer Price Index (PPI) rose at its fastest pace since September 2008, up 9.0% y/y in May (Bloomberg est: +8.5%; Apr: +6.8%). However, the Consumer Price Index (CPI) remained muted, undershooting consensus expectation at 1.3% y/y (Bloomberg est: +1.6%; Apr: +0.9%).”

“More importantly, the CPI continued to fall on a month-on-month (m/m) comparison, indicating that the underlying momentum for consumer prices is weak despite the surge in PPI.”

“The low base and elevated commodity prices will fuel further gains in PPI for the rest of the year. Given the stronger-than-expected momentum, we now expect 2021 PPI inflation to average 7.5% instead of our earlier forecast of 6.3% (2020: -1.8%).”