China's CPI accelerating amid less inflationary pork cycle; PPI falling further

Pork price growth increased further in August, which is expected to boost food CPI inflation. Housing CPI inflation is also expected to have risen slightly on improved demand. In contrast, administrated fuel prices were cut in August to reflect the drop in crude prices and hence probably offset part of the strength in housing and food inflation. 

Overall, CPI inflation is expected to strengthen for the third consecutive month to 1.9% yoy in August from 1.6% yoy in July. That said, unlike previous pork cycles, the lack of demand-pull inflation this time will cause the cycle to be less inflationary and hence less of a constraint on monetary easing. The input price index in the PMI reports improved fractionally in August from July. 

"We expect the PPI index to have narrowed its contraction marginally from 0.7% mom to 0.6% mom. This means that PPI deflation probably deepened to -5.7% yoy from -5.4% yoy", notes Societe Generale.