Pls see attached the full PDF research report, below is a highlight:
¨ China’s October CPI inflation decelerated further to 4.0%, in line with our expectation (3.8~4.2%) but below market consensus (4.2%) (Chart 1). Food prices declined 0.3% MoM and YoY growth slowed from 9.7% in September to 8.5% in October.
¨ Non-food prices declined as the property market sluggishness dampened residential pries. The YoY growth of non-food prices decelerated from 2.0% in September to 1.6% in October, and the MoM growth was negative at -0.1%. This is because growth of residential prices slowed significantly from 6.5% in September to 4.6% in October (Table 2). Rent growth decelerated from 3.8% in September to 2.0% in October, as real estate prices fell in the weak property market (Chart 2).
¨ China’s October PPI inflation also slowed significantly to 6.6% (vs. 9.1% in September) due to sluggish industrial production, largely in line with our forecast (7%) but well below market consensus (8.0%) (Charts 3 & 4). Reasons include accelerated domestic economic downturn and the collapse of the international commodity price bubble. As a result, profits of upstream industrial companies may be eroded significantly (Chart 5).
¨ Growth of producer goods prices decelerated more sharply than that of consumer goods, especially prices of steel, nonferrous metals and chemical products (Table 3). Ex-plant producer prices grew 7.7% YoY in October, down from 10.8% in September. Ex-plant consumer goods grew 3.1% in October, down from 3.7% in September. Prices of main industrial products all weakened. October ex-plant price growth (YoY) was 11.3% for crude oil (vs. 25.6% in September), -6% for polystyrene (vs. 0.8% in September), 15.3% for steel (vs. 24.7% in September), -9.8% for nonferrous metals (vs. -4.6% in September). Purchasing prices of raw materials, fuel and power grew 11% in October, down from 14% in September.
¨ We expect CPI and PPI inflation to decelerate further going forward, providing room for larger interest rate cuts. We maintain our call that the PBoC may cut interest rate by 216bp and the RRR by 350~550bp by the end of 2009, with the size of each IR cut larger than 27bp. PPI inflation is expected to slow to a larger extent than CPI due to weakening industrial demand, overcapacity and falling international commodity prices. This may significantly undermine profits of up-stream companies.
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发表于 2008-11-13 09:25
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