Economist at UOB Group Ho Woei Chen reviews the latest release of inflation figures in the Chinese economy.

Key Takeaways

“Headline inflation was in line with consensus forecast at 2.1% y/y in Jan, led by a jump in food prices while non-food inflation remained modest. China’s Producer Price Index (PPI) remained in deflation in Jan for the fourth consecutive month at -0.8% y/y.”

“Despite the modest gains in non-food inflation, there are some segments that experienced larger price pressures. As a result of the easing of China’s COVID19 measures, demand for travel and entertainment consumption increased sharply in Jan.”

“We maintain our forecast for headline inflation at 2.8% this year (2022: 2.0%) with stronger pick-up in inflation to slightly above 3% in 2H23. Meanwhile, the deflation trend for PPI is likely to continue through 1H23 as a result of a high base of comparison and weaker global demand. For the full year in 2023, PPI could be slightly negative at -1.0% after rising 4.1% in 2022 and 8.1% in 2021.”