(Bloomberg) — China’s producer prices gained for the first time in a year in January as commodity prices climbed, while consumer prices fell back into deflation as virus restrictions curbed travel and spending.
The producer price index rose 0.3% from a year ago, in line with forecasts, and compared with a 0.4% drop in December. The index declined every month last year, except for JanuaryThe consumer price index fell 0.3% last month from a year earlier, following a 0.2% increase in December, the National Bureau of Statistics said Wednesday. The median forecast in a Bloomberg survey of economists was for no change year-on-year
Consumer prices have weakened recently, mainly because of large base effects from high pork prices a year ago, when outbreaks of African Swine Fever had cut supplies. However, food price pressures are starting to increase again as cold weather combined with travel restrictions impact the transport of meat and vegetables.
Core prices, which removes the more volatile food and energy costs, fell 0.3% in January, the first decline since 2009. That was mainly due to a large drop in service prices, NBS official Dong Lijuan said in a statement. The data is distorted by base effects since the Lunar New Year fell in January last year, resulting in higher prices for services such as flights. This year, the holiday falls in February and spending on travel fell because of the ongoing Covid-19 outbreak.
What Bloomberg Economics Says…
“China’s inflation data presented a bad news, good news mix, which — on balance, in our view — probably won’t affect the central bank’s policy near term.”
“A high base was partly to blame for the drop in consumer prices from a year earlier. More concerning was the other factor — sluggish household demand for services due to virus-containment measures in some regions.”
— David Qu, China economist
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China saw a steep decline in travel in January ahead of the Lunar New Year, with local governments introducing testing and quarantine requirements to reduce the risk of coronavirus outbreaks.
“PPI inflation continues the upward trend, suggesting that the manufacturing sector still outperforms,” said Hao Zhou, senior emerging markets economist at Commerzbank AG in Singapore. CPI inflation momentum hasn’t been as strong as expected, and “this split between consumption and manufacturing is likely to persist in the foreseeable future.”
Peiqian Liu, a China economist at Natwest Markets in Singapore, said the data “reinforces the view that the recovery is uneven,” implying the central bank will proceed cautiously on its stimulus withdrawal.
More Details
Pork prices, a key driver of changes in the CPI, fell 3.9% in January from a year earlier after falling 1.3% in DecemberThe NBS also announced adjustments to the CPI basket, saying it will include food delivery, mother and baby care services, new energy cars, wearable smart devices, and car hailing services into the index
(Updates with comments from economists.)
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