TD Securities expects China’s January CPI to slow to 0.3% year-on-year, below the 0.4% consensus forecast. The bank ties this to a sharp drop in food inflation after increases over the past two months.
It points to wholesale food price tracking, which suggests food inflation cooled in January. TD Securities expects softer food prices to pull headline CPI down from 0.8% year-on-year in the prior month.
Services Prices And Policy Easing
TD Securities says services price pressures remain weak, due to soft demand. It argues this backdrop supports further policy easing.
The firm expects the People’s Bank of China to resume rate cuts in Q2, saying it still has room to adjust monetary policy to support growth. The item says it was produced with an AI tool and reviewed by an editor.
The piece is credited to the FXStreet Insights Team. It describes the team as journalists who select market observations from named experts, and add information from commercial sources plus internal and external analysis.
Softer inflation in China now appears to be taking hold, which gives the central bank more room to support the economy. Official data for January 2026 has been released, showing consumer prices rose just 0.2% from a year earlier. This suggests food-driven price pressure is fading and demand is still weak. This supports our view that the People’s Bank of China has clear room to act.
Market Implications For Yuan Bonds And Equities
We expect the PBoC to restart rate cuts in Q2. This would match the easing seen through 2025, when deflation risks were a key concern. That, in turn, could put downward pressure on the yuan in the coming months. Derivatives traders may consider positioning for a higher USD/CNH, including options expiring in May or June to reflect the expected policy shift.
Lower borrowing costs could also lift Chinese government bond prices. A similar move played out last year, when bond futures rose in the weeks before the PBoC’s August 2025 rate cut. Traders may look at long positions in CGB futures to benefit from a potential rally.
This policy outlook reflects weak domestic demand, which could continue to weigh on earnings and the broader stock market. With that in mind, protective put options on indices such as the FTSE China A50 may help hedge risk. The weak services price pressures noted above are another sign of sluggish consumer activity.
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