March 10,2011

China Feb CPI inflation: 3.9%, 4.4% or Any Other Number?

By Lu Ting,Hong Kong

The market is whispering two versions of YoY Feb CPI inflation: 3.9% and 4.4%. Comments: (1) We think 4.4% is more believable, though 3.9% is also possible; (2) We expect headline CPI inflation to rebound to around 5% in March, so be cautious from mid-March after being optimistic; (3) If 3.9% is true, most forecasters might need to change forecasts; (4) Despite doubts on CPI data quality, we believe some inflation risks were exaggerated anyway; (5) China's inflation is to some extent driven by labor costs, so policy tightening won't be too draconian to greatly slow growth

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