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

Key Takeaways

“China’s CPI and PPI continued to moderate and were both below expectations in Jan.”

“We maintain our forecast for 2022 CPI to average 2.2% compared to 0.9% in 2021 as it is expected to rebound in the coming months on the back of the low comparison base last year as well as elevated energy prices. Consumption demand recovery may still be constrained by a weaker economic outlook and COVID-19 containment measures, at least in the first half of the year.”

“We expect PPI to moderate towards 4-6% in 2022 from 8.1% in 2021 but elevated energy prices and the supply chain disruption remain key concerns.”

“The PBOC maintained its rhetoric on a prudent monetary policy that should be flexible and appropriate and to strengthen cross-cyclical adjustment. We expect the PBOC to guide the LPR lower in the coming MLF settings and maintain our call for the benchmark 1Y LPR to fall by another 15 bps to 3.55% by the end of 2Q22.”