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China: CPI inflation acceleration, a temporary phenomenon – ING

FXStreet (Delhi) – Prakash Sakpal, Economist at ING, notes that the China’s consumer price inflation accelerated in November but the delayed recovery in commodity prices undermines consensus forecast of acceleration in China’s CPI inflation in 2016.

Key Quotes

“CPI inflation accelerated to 1.5% YoY in November from 1.3% in October (consensus 1.4%). The low base effect was behind higher year-over-year increase while month-on-month increase, including that in the food and non-food CPI components as well as in core CPI, was zero. PPI deflation was unchanged at -5.9%, which is where it’s been since August.”

“Lower commodity prices explain lower inflation this year; 1.4% YoY YTD vs. 2.0% in 2014 for CPI and to -5.2% vs. -1.9% for PPI (first figure). We expect some of the step down will be retraced when the commodity price crash moves to the base of comparison in 2016.”

“The close relation between the CRB commodity price index and DXY broke down in June (second figure). The 9.5% decline in the CRB commodity price index since June looks outsized against the 3% rally in DXY from which we infer that China growth uncertainty has displaced DXY as the driver of commodity prices. The delayed recovery in global commodity prices undermines consensus forecast of acceleration in China’s CPI inflation to 1.9% in 2016 (INGF 1.5%).”

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