A PPI print above 5% alongside sub-1% CPI would reinforce the market’s read that China is importing cost pressure without the demand to pass it on. That is a negative mix for industrial profits and for confidence in the domestic recovery. A soft CPI reading would keep expectations alive for further policy support from Beijing, which would weigh modestly on the yuan. For commodity-linked currencies such as the Australian dollar, the key signal is demand: weak consumer prices argue against a strong pickup in China’s appetite for raw materials. For oil, firm PPI mainly reflects the energy shock already under way rather than new demand strength.
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China’s October inflation data is expected to show factory-gate prices racing ahead while consumer prices barely move, a split that points to squeezed margins and fragile domestic demand rather than a healthy reflation.
Summary:
China’s October CPI and PPI are due at 01:30 GMT, 8:30pm US Eastern on Sunday.CPI is forecast at around 0.8% y/y, down from 0.9%, with estimates clustered between 0.7% and 0.9%.Core CPI is expected to hold near 1%.PPI is forecast to rise to around 5.2% to 5.3% from 5%, extending a four-year high.Monthly PPI gains are seen slowing sharply, but not enough to stop the annual rate climbing.Trade data follows on 10 November, with credit and money supply figures on 13 November.
China releases October consumer and producer price data at 01:30 GMT on Monday, 8:30pm US Eastern time on Sunday. Forecasts point to a further widening of the gap between subdued consumer inflation and rapidly rising factory-gate prices.
Consumer prices are expected to rise around 0.8% from a year earlier, edging down from 0.9% in September. Forecasts are tightly clustered, with most estimates sitting between 0.7% and 0.9%. Some forecasters see prices unchanged on the month, after a 0.2% rise in September that undershot expectations. Core inflation, which strips out food and energy, is projected to hold near 1%.
Consumer demand has been subdued but steady. Spending ahead of the National Day Golden Week holiday in early October offered some support, although purchases brought forward before the break diluted its impact on the month as a whole.
The producer price index is where the pressure lies. Annual PPI inflation is forecast to rise to around 5.2% to 5.3%, with some estimates higher, from 5% in September, when it hit a four-year high and comfortably beat expectations. Energy costs have been a key driver of the acceleration. Month-on-month gains are expected to slow sharply from September’s pace, but not by enough to stop the annual rate from climbing further.
That combination is the central story. Rising producer prices alongside consumer inflation stuck below 1% suggest that manufacturers are absorbing much of the cost increase rather than passing it on to households, a sign of weak pricing power in a soft domestic economy. It also squeezes industrial profit margins.
The data open a busy week for China. October trade figures follow on 10 November, after exports surged in September. Money supply, new loans and total social financing are due on 13 November.
A CPI print at or below forecast would reinforce the picture of fragile domestic demand. A PPI surprise to the upside would add to concerns over imported cost pressure and keep the focus on how long China’s factories can hold the line on prices.
This article was written by Eamonn Sheridan at investinglive.com.