Inflation is largely absent in China due to its weak domestic demand and falling factory prices. This continues to argue for stronger policy support from the central government given the increased risks from local government debt, as well as further monetary policy easing from the central bank. 

However, any additional stimulus measures may disappoint given that the Chinese economy is still likely on track for the official target of “around 5.0%” this year. We maintain our expectation of stronger property support measures and our call for another cut to banks’ reserve requirement ratio (RRR) in 2H23 but do not expect further reduction in the benchmark rates this year. 

Overall, both the headline and core inflation averaged 0.7% y/y while PPI averaged -3.1% y/y in 1H23. We maintain our full-year headline inflation for 2023 at 0.8% (2022: 2.0%) and PPI at -2.0% (2022: 4.1%). The risk for CPI and PPI remains to the downside.