The bank has revised its 2026 forecasts higher, now seeing consumer price inflation (CPI) at 1.0% and producer price inflation (PPI) at 1.2%.
However, the upward revision does not signal a meaningful shift in underlying economic momentum. BofA emphasises that the recent firming in prices is largely being driven by external factors, particularly higher global energy and commodity costs, rather than a sustained recovery in domestic demand. This distinction is critical for policymakers assessing the appropriate stance of monetary policy.
Inflation remains well below levels that would typically constrain the People’s Bank of China (PBoC). As a result, authorities are unlikely to view the modest uptick in price pressures as a barrier to further easing, especially if economic activity fails to gain traction. Weak consumption, ongoing property sector challenges, and subdued private sector confidence continue to weigh on the domestic growth outlook.
Against this backdrop, BofA argues that the PBoC retains scope to cut interest rates further or deploy additional supportive measures if needed. The central bank’s priority remains stabilising growth rather than containing inflation, given the absence of demand-driven price pressures.
The outlook reinforces the view that China’s macro environment remains characterised by low inflation and policy support, even as global factors introduce some upward pressure on prices
