China’s consumer inflation slowest in a year, leaves room for more stimulus
- In February, consumer inflation slowed
- In February, producer deflation deepened
- Inflation will not limit supportive monetary policy
BEIJING, March 9 (Reuters) – China’s annual consumer inflation eased to the slowest rate in a year in February as consumers remained cautious despite strong pandemic controls being abandoned late in 2022.
Combined with persistent producer deflation, also reported on Thursday, the data showed price pressures had not become an obstacle to more government measures to support economic recovery from COVID-19 disruptions, analysts said.
The consumer price index (CPI) in February was 1.0% higher than a year earlier, rising at the slowest pace since February 2022, the National Bureau of Statistics (NBS) said.
The result was well below the median estimate of 1.9% in a Reuters poll and the annual increase of 2.1% in January.
The government aims for an average consumer price level this year about 3% higher than in 2022.
“For monetary policy, which is focused on consolidating the economic recovery and achieving stable upward momentum, there is no constraint from an inflation rate that is within the policy target,” said Bruce Pang, chief economist for Greater China at JLL, commenting on the data .
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Zhiwei Zhang, president of Pinpoint Asset Management, said the figures conflicted with other data showing significant strength in domestic demand.
“Nevertheless, the weak CPI inflation leaves room for the government to launch more monetary policy easing,” he said.
However, economists generally do not expect major monetary policy moves this year. The government cut banks’ reserve requirements twice last year to stimulate the economy.
While other countries suffer from decades-high inflation rates, strained efforts to control COVID-19 in China last year disrupted output and suppressed demand, keeping price pressures down. Economists expect inflation to strengthen in the coming months, thanks mainly to the end of pandemic controls.
The yuan weakened on Thursday as the price data revived doubts among investors about the pace of the recovery, which faces the challenge of weakening foreign demand and a slowdown in domestic property.
Parliament has set what analysts say is a conservative 2023 gross domestic product growth target of around 5%, a sign that policymakers are aware of economic headwinds.
The NBS attributed the slowing growth in consumer prices to falling demand following January’s Lunar New Year holiday. Most fresh produce prices had fallen as a result of warm weather and abundant supply, it said.
Seasonally adjusted CPI fell 0.5% from a month earlier, missing the forecast for a 0.2% increase. The monthly CPI increase in January was 0.8%.
Annual core consumer inflation, which excludes volatile food and energy prices, was 0.6% in February, compared with January’s 1.0%.
Producer deflation deepened and extended into a fifth month.
The producer price index (PPI) in February fell 1.4% compared to the previous year, mainly driven by softer commodity costs. That compared with the median expectation for a 1.3% decline in a Reuters poll and an annual decline of 0.8% seen in January.
Since October, producer prices have consistently been lower than the previous year.
The economy produced one of its weakest performances in decades last year, pressured by three years of pandemic containment, the real estate slump and a breakdown in private business.
To boost growth, the government plans to stick to its usual playbook on infrastructure spending.
Reporting by Liangping Gao and Ryan Woo; Editing by Bradley Perrett
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