China’s CPI inflation to soften marginally; PPI deflation to deepen again

Agricultural product prices of China dropped over the same period. Therefore, food price inflation is likely to have softened from 3.8% yoy in August, says Societe Generale. 

At the same time, administrated fuel prices were lowered further in September. That said, the weakness is likely to have been offset by a positive base effect in the non-food CPI inflation. Stronger services inflation, thanks to the buoyant tourism sector, is also likely to have raised the non-food CPI. Overall, CPI inflation is likely to have ticked down to 1.9% yoy in October from 2% yoy in September, added SocGen.

China's CPI inflation strengthened to 2% yoy in August from 1.6% yoy in the previous month. This was purely driven by stronger food inflation that increased by 1pp to 3.7% yoy, mainly on the back of higher pork prices. Non-food inflation remained unchanged at 1.1% yoy. That said, pork prices have declined slightly since the beginning of September. 

PPI dropped sharply by 5.9% yoy in August after -5.3% yoy in July, mostly owning to a slump in oil prices. In September, the oil price increased slightly while the input price gauge in the manufacturing PMI report increased 0.9 points to 45.8. Hence, we expect a smaller sequential decline in the PPI. However, due to a negative base effect, the yoy rate may have recorded a faster fall of 6.1% yoy in September.