China's inflation to slip 2.2% in January

Here are 4 reasons why this downtrend will not draw rate cuts.

According to DBS, the CPI in Jan is projected to come in at 2.2%, down from 2.5% in December 2012.

Here's more:

The downtrend of the CPI in the past few months is likely a transient phenomenon that do not justify any rate cuts action because:

1) Economic data have improved across-the-board in a consistent and steady manner even without additional monetary stimulus;

2) Much liquidity is still sloshing around the system amidst ongoing quantitative easing exercises in other economies;

3) Strong pent up demand accumulated in the past two years has elevated the risks of property bubbles; and

4) The PBOC is increasingly employing short term monetary tools, e.g., reverse repos, to fine-tune liquidity conditions. Bottom-line - expect some fluctuations in the CPI around the Lunar New Year but do not jump to conclusions with regards to rate cuts.

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