China’s inflation outlook has been nudged higher, but externally driven price pressures and weak domestic demand mean policymakers still have room to ease further.Summary:BofA lifts China inflation forecasts but sees pressures externally drivenCPI seen at 1.0%, PPI at 1.2% for 2026Inflation remains below PBoC comfort levelsWeak domestic demand keeps easing bias intactPolicy space remains open for further rate cutsChina’s policymakers are expected to retain flexibility to ease monetary policy further, despite a modest upgrade to the country’s inflation outlook (China’s March inflation data confirms a key turning point), according to Bank of America. 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. For markets, this suggests that easing bias remains firmly in place, with policy likely to stay accommodative unless there is a more convincing improvement in domestic demand conditions. This article was written by Eamonn Sheridan at investinglive.com.