Headline inflation accelerated in July but lower core and services inflation indicate weak demand, UOB Group economist Ho Woei Chen notes.

July PPI falls at the same pace as June

“Headline inflation accelerated in July at a stronger than expected pace to the fastest in 5 months, but lower core and services inflation indicate weak underlying consumption demand. Meanwhile, producer prices shrank for the 22nd straight month.”

“The headline inflation will continue to be boosted by year-ago low base of comparison and the adverse weather conditions may also contribute to a stronger than expected rebound in food inflation. Meanwhile, PPI deflation is likely to persist through 2024. We maintain our forecasts for CPI at 0.3% and PPI at -1.3% for 2024.”

“Amid further easing by the PBOC, we expect the 1Y loan prime rate (LPR) to fall to 3.20% by end-4Q24 (current 3.35%). We also think there is a possibility of another 50 bps cut to the reserve requirement ratio (RRR) in 2H24.”