China: CPI to fall further, PPI to moderate - Nomura

Aurodeep Nandi, Research Analyst at Nomura, suggests that they expect China’s CPI inflation to fall from its peak in February, mainly on lower food prices, and PPI inflation to moderate further, as suggested by the weakening in the output price sub-index of the March official manufacturing PMI.

Key Quotes

“New RMB loans and new aggregate financing are likely to rebound in March on seasonal factors, while M2 growth is likely to remain stable, underpinned by flush interbank market liquidity. Distortions in yearon-year trade growth caused by the lunar new year effect should disappear in March. We expect import growth to rise after a sharp fall in February and export growth to drop sharply after February’s surge. We expect headline FX reserves to grow by USD20bn to USD3154.5bn in March; after adjusting for FX and coupon effects, we estimate the adjusted change to be a USD4.0bn rise from a USD19.3bn contraction in February.”