RHB | China | Mild Inflation Provides Room For Easing

Economic Research	15 October 2015
China
Economic Highlights
Mild Inflation Provides Room For Easing China’s CPI came in lower than expected in Sep 2015, while PPI stayed at low levels, indicating disinflationary pressure continued among industrial sectors. Softening food price mainly dragged down the increase in the headline CPI, given release of pork reserve by the government in Sep 2015. Looking ahead, we still believe rising food price (especially pork price) will be the major driver for the CPI in the medium term, given pressure from shortage of breeding hogs. But the mild inflation is unlikely to switch government’s easing stance as deflationary pressure in industrial sectors is likely to continue due to weak commodity prices and sluggish recovery of domestic demand. We expect the monetary authority will stay with easing stance in the coming quarters, and the central bank will lower RRR by another 100bps in 4Q15 to sterilise the loss in monetary base given recent massive declines of forex purchases. We also do not rule out the possibility that the central bank will cut its benchmark interest rate by another 25bps, if economic conditions further deteriorate towards 6.5% YoY in the coming months. Economist:  Zhang Fan| +8621 6288 9611 ext 105
To access our recent reports please click on the links below: 12 Oct: Remain Cautious For China’s Trade Condition 01 Oct: Slightly Improved, But Far From Enough 23 Sept: Downside Pressure Remains For Manufacturing Sectors 14 Sept: Economic Growth Remained Muted   10 Sept: PPI Deflation Presages Further Easing, Despite Rebounding CPI 08 Sept: Weaker Imports Indicate Sluggish Recovery