China’s Inflation In October Is Set To Fall

The inflation figures for October will be out on Wednesday. The consensus is looking for a 5.4% yoy rise of the headline CPI, vs. 6.1% in September.

As we understand, consumer prices inflation in China has been driven pretty much by food prices, and food prices have been stubbornly high for a while, which pushed the CPI inflation high and stayed high, and indeed, prices for non-food components have been relatively stable for the past few months.

Source: National Bureau of Statistics

Bloomberg Brief’sMichael McDonough points to the following chart, showing that their China daily food prices index has plunged very sharply on a year-on-year basis. The index seems to track the CPI food component reasonably well, so perhaps we might see a sharp fall of food component of CPI, and hence a significant fall of the headline CPI.

In that scenario, we could see the case for more selective easing of monetary policy either towards the end of this year or early next year as price pressure eases, something many people have been hoping for. Whether that is appropriate, however, will be debatable and debated.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.