China’s consumer price inflation likely continued uptrend in October

The consumer price inflation of China is likely to have continued with its uptrend in October. According to a Societe Generale research note, the headline inflation is expected to have accelerated to 2.1 percent year-on-year from 1.9 percent in the prior month. This acceleration is expected to be mainly due to positive base effects.

The agricultural products’ wholesale prices were recorded to have more than reversed their increases in September. Therefore, the food inflation is expected to have decelerated in October; however, a positive base effect is likely to push up the year-on-year rate to 3.3 percent from 3.2 percent.

In the meantime, the persistent bolstering in house price inflation, especially in big cities, is expected to impact the CPI housing component. China’s housing inflation is likely to have accelerated to 1.8 percent in annual terms in October. This would be the highest reading in 26 months. Lastly, just a marginal rise in other components is likely, given the slightly increased administered fuel prices and a favorable base effect, noted Societe Generale. In all, the consumer price inflation of China is likely to remain on its uptrend.

Meanwhile, the headline producer price index has registered a significant improvement in 2016 in year-on-year terms, rebounding from -5.9 percent at the end of 2015 to 0.1 percent in September. This was the first positive reading in 55 months.

Positive base effects accounted for just 20 percent of the improvement, whereas the remainder of the improvement was due to genuine price rises, said Societe Generale. Depreciation of CNY and stabilizing commodity prices have accounted for almost 70 percent of the recovery in the headline PPI since the fourth quarter of the last year. The input price index in the official PMI report rose sharply to 62.6 in October, the most solid reading since mid-2008. This indicates towards additional gains in PPI.

“We expect it to have increased sharply to 0.9 percent yoy in October from 0.1 percent yoy in the previous month”, added Societe Generale.