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China’s PPI should have passed its peak although it’s likely to remain high on a y/y basis in the coming months. The PPI printed 0.3 percent m/m in March, weakening from 0.6 percent in February. The former translates into a 7.6 percent y/y rise, compared with 7.8 percent in February. Underlying the PPI is a softening in the upward momentum of commodity prices. For instance the price of steel rebar retreated from a 53-month high during the second half of March.
The CPI number (0.9 percent y/y) came in slightly weaker than market expectations (1.0 percent), mainly dragged by a larger decline in food prices. Food prices dropped by 4.4 percent y/y, dragging the headline CPI inflation lower by 1.31ppt, according to ANZ Research’s calculations. The high base effect, due to food prices spiking 7.60 percent in March 2016, was a reason for the softening in food prices in y/y terms.
"We still forecast a 2.4 percent rise in China’s CPI in 2017, a bit higher than the 2.0 percent in 2016. The contribution of the high base effect from food prices last year should weaken going forward and non-food prices should maintain a mild rising momentum. It should be noted that core CPI inflation has maintained relatively stable, in the range of 1.8-2.2 percent, since Q4 2016, which supports our view of steady CPI inflation," ANZ Research commented in its latest research report.
