China’s consumer and producer price inflation growth slows in January


China’s consumer price index (CPI), the main indicator of inflation, rose 0.9% year on year in January, from 1.5% a month ago, the National Bureau of Statistics (BNS).

The figure was below the institutions’ expectations. Bloomberg and Nomura economists had forecast a 1% increase and a 1.1% increase, respectively.

January’s CPI is generally stable as relevant departments worked to secure supplies during the Spring Festival, said Dong Lijuan, senior statistician with BES.

Food prices fell 3.8% last month from a year ago, contributing to a 0.72 percentage point drop in the CPI.

Due to the high base effect of the same period last year, the price of pork fell 41.6% on an annual basis, compared to a decline of 36.7% in December. Vegetable prices fell 4.1 percent year on year, compared to a 10.6 percent increase in December, Dong said.

China’s slumping CPI growth paves the way for more aggressive easing measures against headwinds to growth, Lu Ting, Nomura’s chief China economist, said in a note.

Nomura expected that the easing measures, which could include a further cut in rates for strategic loans by the central bank, a reduction in the reserve requirement ratio for banks and a significant increase in foreign exchange purchases to add liquidity and limit the appreciation of the RMB, take place after the annual session of the National People’s Congress in early March.

Prices for non-food items rose 2% last month, contributing to a 1.64 percentage point rise in the CPI, according to the NBS. Among them, gasoline and diesel prices rose 20.7 percent and 22.7 percent year-on-year, respectively. Prices for airline tickets and family services rose 20.8 percent and 6.2 percent, respectively, the data showed.

Meanwhile, China’s official producer price index (PPI), which reflects the cost of goods leaving the factory, rose 9.1% year-on-year in January, after rising 10.3% in December.

The figure was also below Bloomberg and Reuters forecasts of 9.5% growth.

According to Dong, among January’s 9.1 percent year-on-year increase, the impact of last year’s price changes was about 9.3 percentage points, and the impact of new price increases price was about minus 0.2 percentage points.

The SNB said the PPI easing was due to a high base effect and measures containing high commodity prices like coal and steel.

Zhang Ning, UBS’s China senior economist, said the PPI slowdown will continue throughout this year. The figure will fall to near or even below 0% in the fourth quarter. This is mainly due to a high basis of comparison, subdued demand from the real estate sector and a more practical decarbonization approach.

In the same context, Nomura expected PPI inflation to fall to 8.6% YoY in February.

Inflation is also a major concern for the central bank in defining monetary policies. Zhang said the slower ex-factory price would ease the People’s Bank of China (PBOC) concerns about high producer prices.

He added that the CPI would likely return to the 2% level, but “that won’t be a barrier to further PBOC easing.” Zhang believed that the central bank would prioritize economic growth in setting its monetary policies.

“We are seeing more reductions in the reserve requirement ratio, lower additional funding costs and a further rebound in credit in the first half of this year,” Zhang said.

(CGTN’s Zhu Feng also contributed to the story.)

Richard L. Militello