Macro economic research: Oct. CPI data review: CPI trended down faster – Zhu Jianfang, Liu Ke and Sun Wencun

Event: the National Bureau of Statistics released macro economics on 11th, Nov., 2008, which show that CPI rose by 4.0% yoy, among which food CPI went up by 8.5% while non-food CPI moved up by 1.6%.

The fall of CPI is in line with our expectation. Oct. CPI came in at 4.0%, down by 0.6 ppt as compared with Sep. and largely consistent with our forecast of 4.1%. Tail-raising factor caused CPI to drop by 0.3 ppt yoy while fall by 0.3 ppt mom.  

Falling PPI drove down non-food CPI. In Oct., non-food CPI declined by a large margin, off 0.4 ppt and this is mainly due to the fall of PPI. Sharply slowing growth of public utilities tariff and construction and decoration material prices is the main reason for lower non-food CPI and falling housing price index led non-food CPI to come off by 0.3 ppt.

The down-trend of CPI will be sustained at least till 1Q09. Looking ahead, the trending-down of CPI will continued till late 1Q09 and it can not be ruled out that some months of 1Q09 will see negative CPI growth. As the tail-rearing factor disappear over time, CPI will experience considerable drop in the last two months this year, which we predict to be 3.1 and 2.4.