China: Deflationary pressures increased in September – UOB Group

China’s Consumer Price Index (CPI) slowed to 0.4% y/y in September (Bloomberg est: 0.6%; August: 0.6%) and core CPI (excluding food & energy) was near flat at 0.1% y/y, its weakest since March 2021. Both services inflation and consumer goods inflation moderated, to 0.2% y/y (August: 0.5%) and 0.5% y/y (August: 0.7%) respectively in September, UOB Group’s economist Ho Woei Chen notes.

Core inflation near-flat in September

“China’s CPI slowed to 0.4% y/y in September and core CPI (excluding food & energy) was near flat at 0.1% y/y, its weakest since March 2021. PPI deflation continued to deepen in September, falling by a larger than expected -2.8% y/y.”

“We keep our 2024 forecast for the CPI and PPI at 0.5% and -2.0%, respectively, and anticipate some improvements to 1.2% and -0.9% in 2025. Against a backdrop of PBOC’s easing bias, we expect the 1Y and 5Y loan prime rates (LPR) to fall to 3.15% and 3.65% by end-2024 from current 3.35% and 3.85%, respectively.”

“The central bank reduced banks’ reserve requirement ratio (RRR) by 0.5% pt effective from 27 September, its second cut for the year and cited another potential 0.25–0.50% pt reduction later this year. While China’s Finance Ministry pledged stronger support at its briefing on Saturday (12 Oct) and said that there’s still ‘large’ room for the central government to raise debt and for the headline fiscal deficit to increase, there were no details on additional stimulus.”