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China: CPI inflation tumbles to 1.6% in September, likely to remain subdued - Nomura

FXStreet (Delhi) – Research Team at Nomura, suggest that after the recently released Chinese data showed that the CPI inflation fell by more than expected to 1.6% y-o-y in September from 2.0% in August (Consensus and Nomura: 1.8%), we expect CPI inflation to remain subdued and see downside risk to our forecast of 2.1% for Q4.

Key Quotes

“The drop was mostly due to lower food (especially fruit and vegetable) price inflation, which eased to 2.7% y-o-y from 3.7%.”

“Non-food CPI inflation also edged down to 1.0% y-o-y in September from 1.1% in August and July.”

“PPI inflation remained unchanged at -5.9% y-o-y in September from August (Consensus: -5.9%; Nomura:-6.0%). Month-on-month, PPI inflation improved to -0.4% in September from -0.8% in August, likely driven by higher commodity prices in September. Overall, the still weak PPI highlights the severe overcapacity problem and sluggish domestic investment demand, in our view.”

“PPI inflation should remain in deep negative territory (below -4% y-o-y) due to overcapacity, although it may improve slightly from Q3 due to a lower base in Q4 2014 (Brent crude fell by 25% y-o-y in Q4 2014 from Q3 2014).”

“We maintain our GDP growth forecast of 6.7% for Q3 and 6.4% for Q4, which should slow further to 5.8% in 2016.”

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