November's key economic indicators continue to show that the economy is on a path towards a steady recovery. Several key data points, including IP and retail sales, are accelerating and stronger than market consensus. We maintain our forecast that GDP growth will rise to 7.7% yoy in Q4 this year and reach 7.9% yoy in Q1 2013.

IP growth posted a better-than-expected 10.1% yoy (vs. consensus of 9.8%) in November, up from 9.6% in October. Power production rose 7.9% yoy in November, up 1.5ppts from October. Clearly, IP growth benefited from the re-stocking of raw material inventory starting from late September. Acceleration in yoy IP growth is mainly seen in ferrous metal smelting, chemical, computer and telecom equipment sectors. Raw material restocking and the acceleration in total social financing should support a further recovery of IP growth in coming months.

Retail sales growth also accelerated to 14.9% yoy in Novermber, slightly higher than market expectation of 14.6%, and improving from October's 14.5%. The items that stood out with high yoy growth rates are clothing (+20.6%), furniture (+24%), cosmetics (+22%) and jewelry (20%). Auto remained one of the weakest items in November with a yoy growth rate of 8.3%.

Fixed asset investment grew 20.7% yoy in Jan-Nov, unchanged from Jan-Oct. While we do not read too much into the FAI figures due to our concern on data quality, we think the relative strength between sector FAI growth rates remains indicative. At the sector level, FAI in transportation continued to improve with a growth rate of 9.7% yoy in Jan-Nov up from 8.6% yoy in Jan-Oct. We expect this trend of stronger transportation investment growth to continue for a few months, in particularly on railway investment, which is the main aspect of policy support for the economy in H2 this year and will likely be succeeded next year by stronger capex on subways.

Real estate investment growth accelerated to 16.7% yoy in Jan-Nov, up from 15.4% in Jan-Oct. On a single month basis, real estate investment growth rose sharply to 28% yoy in November compared with 16% in October. The acceleration of the real estate investment is largely due to recent credit easing on property loans as well as strong property sales in the last six months. We believe it marked the beginning of real estate investment growth recovery.

PPI deflation narrowed further to 2.2% yoy in November from October's 2.8% yoy PPI decline. On a mom basis, the PPI decline 0.1% mom. As for sub-indices of industry output prices, the raw materials price index declined 0.3% mom. We are not overly concerned on this small mom decline, as it can be partly explained by seasonal factors.

CPI inflation rose to 2.0% yoy in November from October's 1.7%. The acceleration was mainly due to the sharp rise in vegetable prices (by 11% mom). Going forward, we think CPI inflation will be highly volatile due to food inflation and the base effect. Specifically, CPI inflation may fall to 1-1.5% yoy in January due to the base effect (very high base in January 2012), but will likely rise steadily towards 4% by the end of next year on higher food prices and PPI.

• [Editor:editor]