20240311-招银国际-Macro_Report__CPI_beat_while_PPI_remained_subdued_7页_632kb

China Macro Report Summary (March 11, 2024)

Key Findings

• CPI Performance: In February 2024, the Consumer Price Index (CPI) exceeded expectations at 0.7% year-on-year, driven by the Chinese New Year mismatch and recovery in food, energy, and tourism prices. Core CPI rose to 0.5% year-on-year, supported by tourism rebound despite weak services and durable goods. Pork prices stabilized, with YoY growth reversing from negative to minimal positive, indicating supply-side relief.
• PPI Performance: PPI declined by 2.7% year-on-year in February, continuing a 17-month contraction due to production suspension during Chinese New Year and weak demand. Energy prices partially recovered, but mining and manufacturing sectors remained sluggish amid global factors.
• Economic Outlook and Deflation Risk: Deflationary pressure persists due to weak consumer demand, supply overcapacity, and policy focus on supply-side reforms. Tourism and durable goods prices may retreat, leading to CPI stabilizing near zero in coming months. PPI may remain constrained in 2024 but could rebound later in the year if demand improves.
• Policy Implications: The People's Bank of China (PBOC) may cut RRR by 50 basis points in total, lower LPRs by 10 basis points, and adjust mortgage rates by 20 basis points in 2024 to promote reflation. Fiscal policy will focus on infrastructure investment and tax cuts for targeted sectors.
• Forecasts for 2024: CPI growth is forecasted at 0.7%, while PPI is expected at -0.3%, highlighting ongoing challenges in demand and supply balance.

Economic Indicators and Supporting Data

• CPI trends showed acceleration in food and tourism prices, with mixed developments in services.
• PPI data highlighted persistence in deflation across sectors like energy and metals.
• Policy actions, including fiscal expansion and monetary easing, aim to mitigate deflation risks.
• Overall outlook emphasizes policy-driven reflation efforts amid domestic and global uncertainties.