Last night, China reported CPI that came in hotter than expectations.SocGen:
Consumer price inflation bounced back from 3.2% YoY in February to 3.6% YoY in March, slightly above market expectations (consensus 3.4% YoY; SG 3.5% YoY). CPI rose 0.2% in mum terms, accelerating from -0.1%. Food inflation (7.5% YoY and 0.2% mum) continued to be the main contributor to the YoY headline CPI, while nonfood inflation (1.8% YoY and 0.2% mum) was pushed up by higher fuel prices.
The People’s Bank of China (PBoC) has been right to remain vigilant on inflation pressures. Although today’s inflation report doesn’t preclude a monetary policy easing move, it will probably lift the bar higher for the PBoC to do so.
One of the arguments made by China bulls — notably those in the Morgan Stanley camp — is that early-year weakness will lead to generous easing, which will lead to a big rebound in growth.
To whatever extent the hot CPI report made easing more difficult, so too does that China bull case get weaker.