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China Inflation August 2022

China: Consumer and producer inflation recede in August

Inflation came in at 2.5% in August, down from July’s 2.7%. The reading was driven by slower food and non-food inflation.

The trend pointed up mildly, with annual average inflation coming in at 1.8% in August (July: 1.6%). Consumer prices fell 0.10% from the previous month in August, swinging from the 0.50% rise recorded in July. August’s result marked the weakest reading since May. Meanwhile, producer price inflation fell to 2.3% in August, from July’s 4.2%, thanks to an increasingly favorable base effect and global commodity price declines.

On the implications for monetary policy, Ho Woei Chen, an economist at United Overseas Bank, said:

“Inflation is relatively muted in China compared to other major economies, giving rise to further room for China’s monetary policy to diverge from that of US and Europe. […] Thus, we continue to see scope for further monetary policy easing, with the 1Y LPR to move lower to 3.55% by end-4Q22 (from current 3.65%). After a 35 bps cut YTD, the 5Y rate is still poised to fall further (from current 4.30%) as PBoC extends support to the property market. Having said that, aggressive easing is unlikely as the central bank has repeatedly ruled out flood-like stimulus and emphasized a targeted approach.”

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