Expect falls in Chinese inflation

China’s inflation figures for October will be out on Wednesday.  The consensus is looking for a 5.4% yoy rise of the headline CPI, vs. 6.1% in September.

China’s consumer prices inflation has been driven pretty much by food prices, and food prices have been stubbornly high for a while, which pushed the CPI inflation high, and indeed, prices for non-food components have been relatively stable for the past few months:

However, as Bloomberg Brief’s Michael McDonough points our, the following chart shows that the China daily food prices index has plunged very sharply on a year-on-year basis.  The index seems to track the CPI food component reasonably well, so the likelihood is that we’ll see a sharp fall in the food component of CPI, and hence a significant fall of the headline CPI:

In that scenario, we could see the case for more selective easing of monetary policy either towards the end of this year or early next year as price pressure ease, something many people have been hoping for.

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Comments

  1. I have seen a range of forecasts ‘possibility below 6%’ through to the ‘5.4%’ mentioned by Zarathustra – when the numbers come in anything in that range can be expected. Drawing the line at the lowest forecast lends itself to a negative headline if the figure comes in above.

    And let’s not forget GDP has been forecast to come in, again in a range, around 8.5% through to just below 9%. Let’s see what the headlines make of that – all depends on the ‘consensus’ whatever that might be.