China’s consumer inflation accelerated last month as the country reopened and the Lunar New Year holiday spurred demand, although gains remain muted enough for the central bank to keep easing monetary policy to support the economy’s recovery.
(Bloomberg) — China’s consumer inflation accelerated last month as the country reopened and the Lunar New Year holiday spurred demand, although gains remain muted enough for the central bank to keep easing monetary policy to support the economy’s recovery.
The consumer price index rose 2.1% from a year earlier, the National Bureau of Statistics said Friday, up from 1.8% in December and matching the median estimate in a Bloomberg survey. Core inflation, which doesn’t include volatile food and energy prices, rose to 1% — the highest since June — a sign of stronger demand in the economy.
Producer deflation deepened in January, with prices falling 0.8% from a year earlier, largely because of softer commodity costs. Economists surveyed by Bloomberg had expected a 0.5% decline.
While consumer prices are expected to pick up this year as the economy recovers, analysts don’t expect China to face an inflation problem like in the US and elsewhere when countries began emerging from Covid lockdowns. Economists surveyed by Bloomberg predict inflation in China will average 2.3% this year, slightly higher than 2% last year.
That will likely give the People’s Bank of China room to continue supporting the economy, including through interest rate cuts. In a sign that the central bank is keeping policy relatively loose, it injected some $150 billion in funds into financial markets over the past three days to ease a liquidity squeeze.
The inflation data will allow authorities to keep monetary policy “supportive” while continuing to “provide ammunition to the economic recovery,” said Zhou Hao, chief economist for Guotai Junan International Holdings. He added that Friday’s data “points to a generally stable inflation outlook.”
None of the economists surveyed by Bloomberg expect the rate on the PBOC’s one-year loans — called the medium-term lending facility — to be cut next week, although some see the chance of a reduction in the second quarter.
What Bloomberg Economics Says …
“China’s CPI inflation picked up in January as expected — but for unexpected reasons, which matters. The driver was higher prices of food, not services. The implication — high-frequency data have confirmed a rebound in consumer spending is underway but the signal from Friday’s price data is that — so far — it’s underwhelming.
CPI inflation still lacking a strong push from consumption, combined with deepening PPI deflation, reinforces our view that the People’s Bank of China will cut its one-year policy rate by 10 basis points in the coming month or two.”
— David Qu, economist
Read the full report here.
Consumer prices were expected to pick up last month given the rebound in demand around Lunar New Year as people traveled and spent money, with holiday spending data pointing to a jump in catering, tourism and other in-person businesses.
The jump in consumer prices was due to effects from the holiday along with the changed virus prevention and control policies, Dong Lijuan, chief statistician at the NBS, said in a statement. Food prices grew 6.2%, driving the overall CPI figure higher by more than a percentage point, Dong said. Services prices rose 1%, slightly faster than December’s 0.6% increase.
Unlike some other countries, the Chinese government has the power to influence or control the price of key products including coal and power, through policies such as buying and selling from its strategic reserves.
“I don’t take the rise of inflation as a problem for the policy makers at this stage,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management. He expects monetary and fiscal policies to stay proactive to boost domestic demand.
The economy’s overall recovery this year — which is largely expected to rely on a boost in consumption — remains precarious. A sluggish property market, declining exports and rising geopolitical tensions are significant overhangs that have clouded the outlook.
For inflation in the rest of the world, the impact of China’s reopening would be “immaterial” as global demand continued to weaken, Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. said in a report. Ultimately domestic factors will shape each country’s inflation outlook, including the US, he wrote.
(Updates with more details on the central bank.)
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