China: Inflation seen at 2.8% in 2023 – UOB

Economist at UOB Group Ho Woei Chen reviews the latest release of inflation figures in the Chinese economy.

Key Takeaways

“Headline inflation was in line with consensus forecast at 2.1% y/y in Jan, led by a jump in food prices while non-food inflation remained modest. China’s Producer Price Index (PPI) remained in deflation in Jan for the fourth consecutive month at -0.8% y/y.”

“Despite the modest gains in non-food inflation, there are some segments that experienced larger price pressures. As a result of the easing of China’s COVID19 measures, demand for travel and entertainment consumption increased sharply in Jan.”

“We maintain our forecast for headline inflation at 2.8% this year (2022: 2.0%) with stronger pick-up in inflation to slightly above 3% in 2H23. Meanwhile, the deflation trend for PPI is likely to continue through 1H23 as a result of a high base of comparison and weaker global demand. For the full year in 2023, PPI could be slightly negative at -1.0% after rising 4.1% in 2022 and 8.1% in 2021.”