Chinese PPI inflation likely to moderate in months ahead - Commerzbank

The Chinese inflation figures released on Saturday for the month of November had a few surprises. The headline rate rose 1.7 percent year-on-year, coming is slightly below the consensus expectations of 1.8 percent. Sequentially, the consumer price inflation came in flat at 0.1 percent. Lower food prices were the main culprit as it dropped 0.5 percent sequentially.

According to a Commerzbank research report, food prices are expected to stabilize ahead of the Lunar New Year and this might in turn limit the downside to the overall CPI. Meanwhile, PPI inflation moderated to a four-month low of 5.5 percent on a year-on-year basis. Weaker commodity prices might see an additional easing in the PPI in months ahead.

In all, the authorities and market participants are expected to take the benign inflation report quite well. This will keep the fears of monetary tightening at bay. However, the larger theme of financial deleveraging is likely to continue, namely through continued macro-prudential and regulatory measures to mitigate the financial risks.

The PBoC set the mid-point fix for USD/CNY lower this morning by 0.1 percent to 6.6152 and spot USD/CNY has opened slightly lower to 6.6170, noted Commerzbank.

“The bigger picture remains one of stability however with the 6.57-6.67 range of the past two months to persist”, added Commerzbank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was neutral at 35.4484, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 0.258417. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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