Asia Insights Global Markets Research Economics - Asia ex-Japan China: A more realistic picture of core CPI inflation after excluding gold The role of gold in the recent rise of core CPI inflation China has been mired in a moderate recession since late 2022, with CPI inflation at around 0% y-o-y and PPI inflation at around -2.5%. Recently, following the steady rise in core CPI inflation to 1.2% y-o-y in October from -0.25% in January-February, markets have been looking at whether China will finally escape t ...

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Economics in Asia, specifically focusing on China - **Key Metrics**: Consumer Price Index (CPI) and Producer Price Index (PPI) trends Core Insights 1. **CPI and PPI Trends**: - CPI inflation rose to 0.2% year-on-year (y-o-y) in October from -0.3% in September, exceeding expectations (Consensus: -0.1%; Nomura: 0.0%) [1][4] - PPI deflation improved to -2.1% y-o-y in October from -2.3% in September, aligning with market expectations (Consensus: -2.1%; Nomura: -2.3%) [1][9] 2. **Drivers of CPI Increase**: - The CPI increase was primarily driven by food prices due to lunar calendar effects and elevated gold prices contributing to core prices [1] - Sequential CPI inflation increased to 0.2% month-on-month (m-o-m) in October from 0.1% in September [4] 3. **PPI Deflation Factors**: - The improvement in PPI was influenced by rising global prices of non-ferrous metals, such as copper, while factory gate prices for durable goods remained low [1] - Sequential PPI inflation recorded at 0.1% m-o-m in October, marking the first positive reading in a year [9] 4. **Future Expectations**: - CPI is expected to rise to 0.6% y-o-y in November, supported by favorable base effects and food price increases [3] - PPI deflation is anticipated to ease to -1.9% y-o-y in November due to improvements in domestic commodity prices and global oil prices [3] 5. **Food Price Dynamics**: - Food inflation moderated, with negative inflation for pork, vegetables, eggs, and fruit narrowing in October [5][6] - Gasoline prices fell by 5.5% y-o-y in October, contributing to a drag on headline CPI [6] 6. **Service Sector Performance**: - Strong travel demand during the extended Golden Week holiday led to significant price increases in hotel accommodation, airline tickets, and tourism services [7] Additional Considerations 1. **Economic Challenges**: - The ongoing anti-involution campaign may not sufficiently reflate the economy due to demand-side headwinds and lack of mega stimulus programs [2] - Local governments' excessive investment in manufacturing may not be effectively contained, potentially leading to overcapacity issues [2] 2. **Investment Outlook**: - The recent stock market boom may provide new funding opportunities for corporations in sectors facing overcapacity [2] 3. **Sector-Specific Insights**: - PPI inflation in upstream sectors remained unchanged, while processing manufacturing sector deflation worsened slightly [10] - Notable improvements in PPI readings attributed to better regulation of production capacity in certain industries [11] Conclusion - The economic indicators suggest a cautious optimism with improvements in CPI and PPI, but underlying challenges remain that could hinder sustainable growth. The focus on food prices and service sector performance will be critical in the coming months as the economy navigates these complexities.