China’s surging consumer inflation will rise further on the current oil spike, but the jump will not last long and probably will not affect the pace of monetary easing in 2020, according to Citigroup Inc.
Consumer inflation in China will hit 5% in January as higher oil prices combined with a low base from 2019 drive up the cost of vehicle fuel, petrochemicals and other by products such as plastic packaging, Yu Xiangrong, a Hong Kong-based Citigroup economist, wrote in a note.
He also said producer prices are more likely to turn positive in the month, as China relies heavily on foreign supplies for oil and more expensive imports pass through to downstream sectors. Inflation data for December is due for release on January 9.
Yet, the surge caused by supply shocks will not last long since there’s still a possibility that Iran and the US could find common cause in a new agreement, Yu said. The central bank will “keep its easing bias to contain downside risks in 2020,” he said.