The big jump in February CPI for China has been met with optimism out there

I don't share it

Here's the data (link here for more):

  • CPI 2.3% y/y, vs. expected 1.8%, prior was 1.8%
  • PPI -4.9% y/y, vs. expected -4.9%, prior was -5.3%.

That CPI looks good for reflation, or at least much better than we've come to expect. But, here are the buts:

  • The CPI is still below the government's 3% target
  • and much of the increase has come from volatile food costs (+7.3% y/y), while non-food is still moribund (+1.0% y/y)

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While I'm at it .... a quick take from ING (bolding is mine):

ING: PBoC May Cut Policy Rate This Month Amid Deep PPI Deflation

  • PPI deflation in China will persist until global oil prices stabilize long enough for a low-base effect to kick in
  • Low-base effect would set in towards year-end if oil prices stay close to average in January
  • Deep PPI deflation squeezes cash flows in China's highly-leveraged corporates and calls for lower interest rates
  • Expects PBoC to cut policy interest rates by 25bps before month end