Chinese inflation picked up pace in December – UOB

UOB Group’s Economist Ho Woei Chen, CFA, assessed the latest inflation figures in China for the month of December.

Key Quotes

“The pace of increase in China’s Consumer Price Index (CPI) remained elevated at 4.5% y/y in December (Nov: 4.5% y/y) though this came in below consensus forecast of 4.7%. December-November 2019 inflation is at the highest since January 2012 when it was at the same rate.”

“Importantly, core CPI (excluding food and energy) was tame at 1.4% y/y, unchanged from November. Pork price was again the chief contributor to the high inflation, rising 97.0% y/y in December though it has moderated slightly from more than 100% gains in the two preceding months. The upcoming Lunar New Year celebration will likely keep pork prices elevated but gains appear to be coming off.”

“Overall in 2019, CPI rose 2.9% (2018: 2.1%) which was higher than our estimate of 2.8% while PPI fell 0.3% (2018: 3.5%). Notably, annual consumer price inflation was the highest in eight years and close to the government’s 3.0% target while the producer price deflation in 2019 followed two preceding years of gains amidst the weaker business environment.”

“Looking ahead, global oil market, domestic pork prices and economic growth will continue to drive the inflation outlook in China… We are maintaining our headline inflation forecast for China at 2.6% for 2020.”