China's CPI inflation edged up to 1.5% y/y in April from 1.4% in March on last year's lower base. CPI inflation was -0.2% m/m in April, reflecting still-soft consumer sentiment. Both core inflation (1.5% y/y) and services inflation (2.1% y/y) have been stable, suggesting that the risk of CPI deflation is still low.
Producer prices extended their record stretch of declines in April, falling 0.3% m/m and 4.6% y/y; analysts do not expect a quick turnaround in PPI deflation. Low CPI inflation, negative PPI inflation and the negative GDP deflator in Q1 all point to a negative output gap. This is expected to persist throughout 2016, exerting downward pressure on inflation.
Subdued inflation will allow room for further monetary policy easing during the remainder of 2015, says Standard Chartered.
