Tame Chinese Inflation Frees PBOC's Hand as Economy Loses Steam

(Bloomberg) -- China’s factory inflation slowed for a fourth month while consumer prices steadied amid sluggish demand, making life easier for the central bank as it works to ease funding conditions to the real economy.

• The producer price index climbed 3.3 percent in October from a year earlier, matching the forecast in a Bloomberg survey of economists and slower than the previous month
• The consumer price index rose 2.5 percent, the same pace as in September

Key Insights

• Slowing factory price gains add to evidence domestic demand remains sluggish despite easing policies. The manufacturing PPI was at the slowest since October 2016.
• Gains of consumer prices steadied, signaling earlier inflation pressure stemming from swine disease and flooding has eased
• The PBOC will be able to keep interest rates on hold for an extended period and decouple from the U.S. Fed. The central bank will focus on liquidity management and its stance is neutral, said Raymond Yeung, chief greater China economist for Australia & New Zealand Banking Group Ltd. in Hong Kong