China CPI and PPI inflation both below expectations Domesti...-110776775

Asia Pacific Economic Research13 October 2024J P M O R G A Nwww.jpmorganmarkets.comEmerging Markets Asia, Economic and Policy ResearchGrace Ng(852) 2800-7002grace.h.ng@jpmorgan.comHaibin Zhu(852) 2800-7039haibin.zhu@jpmorgan.comTingting Ge(852) 2800-0143tingting.ge@jpmorgan.comJPMorgan Chase Bank, N.A., Hong Kong Branch•September CPI moderated to 0.4%oya on a 0.1%m/m sa fall. Food prices inched up 0.2%m/m sa, vehicle fuel prices fell 2.8% m/m nsa, and core CPI inflation moderated to 0.1%oya on a 0.1%m/m decline.•Both service prices and residence costs fell 0.1% m/m sa in September. As summer vacation demand faded, along with easing in global oil prices, both traffic/communication prices and recreational service prices dropped 0.4%.•PPI deflation intensified further, as PPI dropped 2.8%oya on a 0.8%m/m sa decline, with broad-based decline across energy-related PPI, prices of industrial metals, as well as construction-related input costs. •We maintain our forecast for low, positive headline CPI inflation through the rest of the year mainly on base effect as CPI fell into modest deflation in 4Q23, along with a modest lift from vegetable and pork prices. Our forecast for full-year 2024 CPI inflation stands at a modest 0.4% while PPI deflation will continue through the year end. •The latest policy announcements form 3-arrows of China’s policy stimulus: monetary easing, fiscal support and structural rebalancing. The monetary easing helped to remove downside risk to our 4Q growth forecast (5.5%q/q saar vs. 3% in 3Q). The long-awaited MOF press conference focused on risk mitigation (local government hidden debt and housing) but direct consumption support is absent and fiscal support for social welfare is very small. The risk to our 4Q growth forecast (5.5%q/q saar) is now biased to the upside but only modest, and the domestic supply-demand imbalance, hence PPI deflation and soft CPI inflation, will linger on. China’s CPI inflation ticked lower in September, as headline CPI rose 0.4%oya from August’s 0.6% (vs. 0.5% in our forecast). Seasonally adjusted, headline CPI inched down by 0.1%m/m sa, following the 0.2% modest gain in August. In further breakdown, food prices inched up 0.2%m/m sa after the 2.2% jump in August. Pork prices ticked up 0.4%m/m nsa (vs. 7.3% in August) and vegetable prices rose 4.3%m/m nsa (vs. 18.1% in August). Both traffic and communication prices and recreational, educational and cultural service prices dropped 0.4%m/m sa in September, as summer vacation related demand faded along with easing in global oil prices. In addition, service prices and residence costs fell 0.1% m/m sa, and vehicle fuel prices fell 2.8% m/m nsa (vs. -2.9% m/m nsa in August). Excluding food and energy prices, core CPI inflation moderated further to 0.1%oya (vs. 0.3% in August) on a 0.1%m/m decline. It reflects ongoing sluggish domestic demand conditions.PPI deflation intensified further, as PPI dropped 2.8%oya (vs. -1.8% in August or -2.2% in our forecast) o