Inflationary stress eases in June – UOB

UOB Group Economist Ho Woei Chen, CFA, evaluations just lately launched inflation outcomes for the Chinese language economic system.

Key quotes

“China’s producer worth index (PPI) and client worth index (CPI) inflation moderated in June.”

“Nationwide measures to comprise will increase in uncooked materials costs could have helped stabilize the PPI, however excessive world crude costs and better freight prices, as seasonal demand picks up in direction of the tip of the yr. the yr exacerbates the tight provide chain, which in flip could additional contribute to cost stress. PPI inflation is predicted to stay excessive in 2H21 and we keep our annual forecast of seven.5% (2020: -1.8%).

“The transmission to the CPI may proceed to stay subdued attributable to a extra gradual restoration in demand. Headline inflation may slide barely beneath 1.0% yoy in 3Q21 earlier than rebounding in 4Q21. With 1H21 CPI inflation of barely 0.5% on common, now we have downgraded our CPI forecast for the total yr of 2021 to 1.1% from 1.9% (2020: 2.5%).

“The extra subdued 3Q21 CPI backdrop may give the federal government extra leeway for focused reductions in banks’ reserve requirement ratio (RRR).”

“We see a chance of a focused discount within the RRR in 3Q21, whereas we keep our expectation of retaining the Prime Lending Charge (LPR) unchanged this yr with the LPR at 1 yr and the LPR at 5 years and above at 3.85 % and 4.65% respectively. “

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