Thursday, January 21, 2021

Consumer prices in China rise but worries about core inflation persist

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China’s consumer price index returned to positive territory in December, giving hope that the country’s economic recovery will further support demand at a time when core inflation remains low.

The country’s consumer price index beat expectations to hit 0.2% more year-over-year in December after falling 0.5% a month earlier, with gains largely attributable to to food prices.

Price growth in China has been anemic in recent months despite the country’s rapid recovery from the coronavirus, which has been fueled by industrial production as new cases have remained low.

China’s gross domestic product is expected to have grown 2.1% last year, compared to expected contractions in other economies.

Core inflation, which excludes food and energy prices, fell to 0.4% year-over-year in December, lower than at any time since the start of the year. coronavirus epidemic and its lowest level since early 2010.

Persistently low inflation levels have created a riddle for decision makers as other sectors of the economy continue to warm. People’s Bank of China reduce benchmark loan rates last year, but the government has since taken steps to restrict the real estate sector.

“With economic activity expected to remain strong and core inflation likely to rebound, we believe the PBOC will tighten policy this year,” said Julian Pritchard-Evans, senior economist for China at Capital Economics.

He added, however, that consumer prices could return to deflation in the coming months due to the sharp increases in pork prices last year.

The African swine fever epidemic in the summer of 2018 led to the slaughter of millions of pigs, pushing up the price of pork – one of the most important components of the consumer price index in China. In July, pork prices rose 86 percent year-over-year.

China ex-factory prices, which were in negative territory for most of last year, fell 0.4% year-on-year in December, beating economists’ expectations. On a monthly basis, the producer price index rose 1.1 percent, the fastest rate in more than four years.

Iris Pang, chief economist for Greater China at ING, suggested the increase was in part due to a coronavirus outbreak in Hebei province, which disrupted supplies. China reported on Monday that new cases had passed 100 for the first time since July, with nearly all new domestic cases in Hebei.

But Ms Pang added that the CPI and PPI are expected to gain in the coming months.

“After the Chinese New Year, we should see demand increase,” she said.

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