"The main takeaway is that deflation pressure in the industry has changed rapidly due to higher commodity prices. We expect producer price deflation to be over for now and see moderate inflation at the producer level. It has little implication for monetary policy, which is currently guided mainly by economic activity".
-Danske Bank
According to the data published earlier on Thursday Chinese inflation is experiencing continuing increase in producer prices during the previous month. The officials shows, PPI advanced 0.5% on a monthly basis in May, posting the third monthly increase, thus pushing the annual rate up to -2.8 %, consensus was at -3.2% on the yearly basis from -3.4% in April. Meanwhile, Chinese producer prices are mainly affected by commodity prices while current increase in the following data PPI is a simple reflection of higher metal prices at the beginning of current year. Moreover, the advance of producer inflation is positive for industrial profits which are now forecasted to have remained positive in May. The CPI inflation released on the same day, in turn, surprised on the downside in May, slipping to 2.0% on the yearly pace, from 2.3% in April. This data, was influenced by lower food prices, since inflation in vegetable prices has accelerated. Inflation excluding food was unchanged and remained at 1.1%. The official CPI rate went up to 2% in the 12 months through May, down sharply from 2.3% in April.
In the meantime, on Wednesday markets confirmed that the country's exports dropped in May for the third time in four months, confirming that major global economy continue to suffer from weak demand.
© Dukascopy Bank SA