China’s producer prices likely to remain relatively robust, CPI to improve through rest of 2018: ANZ Research

China’s producer price index (PPI) is expected to remain relatively robust and the consumer price inflation should improve in the rest of the year, according to the latest report from ANZ Research. The rise in crude oil price has started to impact China’s headline PPI, as seen in the inflation data for June. Following the strong rise in global oil prices, China’s domestic oil and natural gas prices recorded a jump of 17 percent y/y ytd, or 32.7 percent y/y in June.

With Brent crude futures surging 66 percent to USD78 from USD47 over the past 12 months, domestic fuel prices in China is expected to continue to accelerate, which will in turn exert further upward pressure on the PPI. On the other hand, steel prices rose by 4.5 percent y/y in June, albeit slower than the headline PPI.

In addition, fuel prices are also likely to lift China’s CPI going forward. China’s statistical agency does not disclose the detailed components of its CPI basket. The weights of fuel and related items are likely to be only around 2.5 percent, according to our estimates, as reflected in the weights of the transport and utilities sub-indices of the CPI basket.

"We maintain our annual forecasts of 4.0 percent for the PPI and 2.0 percent for CPI. The trends in inflation will provide room for the PBoC to maintain their ‘targeted’ policy stance, instead of using broad-based easing," the report added.