China: Inflation lost momentum in December – UOB

Economist at UOB Group Ho Woei Chen, CFA, assesses the latest inflation figures in the Chinese economy.

Key Takeaways

“China’s CPI and PPI cooled off at a faster than expected pace in Dec. Notably, CPI and PPI both fell on a month-on-month basis.”

“We expect headline CPI inflation to remain stable under 2% in the next few months before heading higher in 2H22 for full-year 2022 average of around 2.2%. Meanwhile, the higher comparison base should set PPI into a slower growth pace ahead. After averaging 8.1% in 2021 (2020: -1.8%), we expect PPI to moderate towards 4-6% in 2022.”

“As CPI inflation returns below 2% and PPI continues to moderate, this will provide a more conducive backdrop for the People’s Bank of China’s (PBOC) to ease its monetary policy in 1H22. We expect the 1Y medium-term lending facility (MLF) rate to be cut this month following the 5 bps reduction in the benchmark 1Y Loan Prime Rate (LPR) in Dec 2021.”