A combination of subdued inflation and weak imports suggests that more easing measures lie ahead

Headline CPI inflation softened further to 2.0% y/y in August from 2.3% y/y in the previous month, while PPI deflation widened to -1.2% y/y from -0.9% y/y in July. The subdued inflation outturns provided room for further policy easing in the second half of the year, which is needed to spur sluggish domestic demand. Separately, the authorities announced trade data on Monday, among which, exports continued its strong performance whereas imports remained weak. Looking ahead, we anticipate that the authorities will deploy more “targeted” easing policies in the rest of the year, so as to sustain economic growth aligned with their annual target of 7.0-7.5%. Moreover, the government is set to press ahead with structural reforms, providing new impetus for the economic rebalancing. We therefore maintain our growth projection of 7.2% for this year.

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