The Iran War has ended three years of factory-gate deflation in China and pushed CPI inflation to its highest level since early 2023 (after adjusting for Lunar New Year distortions). The big picture though is that the uptick is still fairly modest and is unlikely to prove durable. Inflation will climb further over the next couple of months but, provided that the ceasefire announced on Tuesday doesn’t fall apart, the headline CPI rate should peak well below the PBOC’s target before dropping back under 1.0% by year end.
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