Macro Economy, October PPI Review:  PPI declines more than expected--- Zhu Jianfang, Liu Ke, Sun Wencun

Event:  National Statistics Bureau released data for October, showing that PPI was up 6.6% YoY; raw materials, refined fuel, energy purchase prices were up 11%.

PPI drops more than expected.  In October, the PPI fell 2.5 ppts MoM, more than what was expected.

A drop in global bulk commodity prices dragged the domestic PPI down.  International bulk commodity prices have been falling rapidly since July, and have already made a negative impact on the domestic PPI.  

In November, PPI could fall to ~4%.  From our present understanding of market data, input prices will continue to fall, but the rate of decline will be milder then what was witnessed in October. If considering last year as the base factor, then the PPI in November could fall to ~4%.

PPI will continue to slide until 3Q09.  Due to the impacts of both the turbid global economy and the lagging effect of the retrenched domestic monetary policy, PPI will continue to slide until 3Q09.  Also, the retrenched monetary policy in 2008 will have a noticeable effect on the PPI in 2009, and will continue affecting the PPI well into next year, at least until 2Q09.