FXStreet reports that economist at UOB Group Ho Woei Chen, CFA, assesses the latest inflation figures in the Chinese economy.

“China’s headline Consumer Price Index (CPI) remained in decline at -0.2% y/y in February (Bloomberg: -0.3%, Jan: -0.3%), again due to a high comparison base. Both food and non-food CPI fell by 0.2% y/y.”

“We expect the headline inflation to rebound back into positive from March as the high base effect wears off. For the full-year 2021, our forecast for CPI remains at 2.6% (2020: 2.5%), below the 3.0% target set by the National People’s Congress (NPC). Nonetheless, there is upside risk should the higher PPI be translated into consumer prices.”

“Producer Price Index (PPI) jumped sharply by 1.7% y/y in February (Bloomberg: 1.5%, Jan: 0.3%). We expect further pick-up in the PPI inflation from the low base last year and sustained commodity prices... After two preceding years of decline, we expect PPI to rebound to 4.0% this year (2020: -1.8%).”

“As China is a major part of the global supply chain, the strong rebound in PPI may further fuel concerns about the global inflation outlook. Nonetheless, it must be emphasized that China’s PPI is still being led by higher commodity prices while global demand will likely take longer to recover which thus supports the continuation of the current monetary policy stance this year.”