Hawkish Hogs, Dovish Bank

A pork shortage is again driving China’s consumer inflation outlook, and CPI could shoot through the government’s 3% full-year target as early as May or June. Higher CPI prints from rising pork prices will reshape market expectations of the potential scope for monetary easing. But ultimately Beijing must remain on an easing course and has no scope to tighten monetary conditions: debt burdens among corporates and local governments are too high, and policy-makers will seek to maintain the ongoing cyclical rebound in the economy. Producer prices are currently playing a more important role than pork-driven consumer inflation in shaping the PBOC’s policy reaction function.

Posted May 2, 2019
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