Event:
National Bureau of Statistics released PPI and CPI statistics of March 2009 on April 17, 2009: In March, PPI slid by 6.0% yoy or 4.6% yoy if accumulated based on January-March 2009; RPPI fell by 8.9% yoy or 7.1% yoy if accumulated based on January-March 2009.
Our Analysis and Estimation:
1. PPI goes on declining in March 2009, which is in line with the market expectation; 6% year-on-year decrease is 1.5ppt above that of the previous month, and March PPI has hit the lowest ever since its release from October 1996 as well.
2. CPI declines for consecutive 11 months since May 2008; March 2009 sees initial sustained monthly negative growth from December 2002.
3. Viewed from statistics, CPI sees year-on-year growth mainly due to appreciation and the carryover effect.
Our Conclusion and Forecast
PPI and CPI both see negative growth in March 2009 and they are to continue in the coming several months, thus we figure out that the market has officially entered into deflation.
In order to weaken deflation anticipation, Central Bank might be necessary to cut rate again. Although space is of limit for down-regulation, full adjustment as early as possible is quite necessary.