Asia week ahead: China inflation and trade data

We expect China’s July CPI to be almost unchanged as recently adopted measures by the government have yet to take full effect. While the Politburo reiterated support for the economy, we await further details on the said measures.

Meanwhile, we expect PPI inflation to remain in negative territory. Despite the recent increase in oil prices, the mining and manufacturing prices are likely to drop further as evidenced by data releases this week (Caixin and property prices).

For Taiwan, July CPI inflation is expected to rise only slightly as the price of household amenities remain high amidst robust demand with consumer confidence up for a third consecutive month. The consumer confidence index rose 1.73 points from June to 68.39 points in July, the highest level since last year April.

Food prices are still climbing in India despite government’s effort to keep price increases under control. Tomato prices in July recently spiked due to seasonal factors compounded by the early arrival of monsoon rains. The government announced an export ban on non-basmati rice, resulting in a further tightening of global supply for grain. Given the lagged impact of the ban, headline inflation could still exceed RBI’s target range of 2-6%.

This development however is unlikely to prompt a rate hike by the RBI as food inflation is expected to recede in the coming months.

Next week features 2Q GDP reports from Indonesia and the Philippines. Growth is expected to slow slightly in 2Q for both economies as base effects fade and higher inflation caps purchasing power. Meanwhile, tight financial market conditions are also expected to have weighed on investment activities as bank lending slowed. Despite the slowdown, Indonesia and the Philippines are expected to post respectable year-over-year expansion with Indonesia set to grow by 4.7%YoY while the Philippine economy likely grew by 5.6%YoY.

Several regional economies will be reporting trade data in the coming week. China and Taiwan will release trade figures that will likely show another period of contraction for both exports and imports. Soft electronic exports due to weak global demand should continue to weigh on exports, which in turn would cap the outlook for the manufacturing sectors of both China and Taiwan.

For the Philippines, June data will showcase both exports and imports likely in contraction given prospects for slowing global trade. Exports, which posted a surprise expansion in May, might revert to a contraction as demand for the mainstay export item, electronics, remains soft. Meanwhile, imports will continue to contract as global commodity prices normalize from the peaks experienced in 2022. All in all, the overall trade balance will likely stay in deficit with the shortfall pegged at roughly $4.5bn for the month.