Surge in China's CPI likely to be viewed as transitory

China's August's CPI rose for the third straight month to 2.0% y/y from 1.6% in July. The increase was driven by higher food prices which climbed to 3.7% from 2.7% in July. In contrast, PPI remained in deflationary territory at -5.9% y/y. 

"This is the 42nd consecutive month of price contraction, reflecting depressed industrial production and weak commodity prices. Overall, the surge in CPI is likely to be viewed as transitory and is unlikely to deter PBoC's easing bias. The deflation trend in PPI gives a clearer and more accurate take on the state of the economy", says Commerzbank. 

In other news, Premier Li Keqiang remarked at the World Economic Forum's 'Summer Davos' meeting in Dalian that the economy is still growing in a "reasonable range" even as it faces "downward pressures". On the currency, he said "there is no basis for persistent depreciation of the renminbi" and that "China will not want to see any currency wars as it would only hurt China". 

USD-CNY's mid-point was fixed higher by 0.2% this morning to 6.37720 after closing higher by 0.2% yesterday at 6.3782. It is trading higher in early Asian hours to 6.3850 tracking the weakness in regional currencies and weaker equities.