The Lunar New Year has again disrupted an important Chinese economic statistic after consumer price inflation jumped to an annual rate of 1.4% from 0.8% in January, thanks to price rises, especially for food because of the week-long break.
The holiday may have also helped push the deflation gripping the productive sectors of the economy, deeper into the red as well.
Economists say the holiday break regularly makes the reliability of Chinese economic data for January and February tough to read.
We have already seen it with the trade data on Sunday with a 48% jump in exports and a 20% slide in imports (the latter helped by plunging commodity prices for oil, copper, grains and iron ore and coal).
And we will see it later today with business investment, retail sales and later in the week with real estate and housing data.
The 1.4% rise in consumer prices last month was above forecasts for a 1% rise. January’s reading of 0.8% was lowest in five years. The February increase in the CPI was still well below the government’s target of 3% for the full year.
The CPI also increased 1.2% in February from January, hinting at the impact of price rises tied to the long holiday break (especially for food). In January, it rose 0.3% from December.
For January and February, the CPI rose 1.1%, but much of this was due to higher food prices in February and the non food price group was up around 0.9%, indicating that disinflationary forces remain at work in China.
China’s producer price index is a bigger concern as it dropped 4.8% in February from a year earlier, worsening from a 4.3% year-over-year drop in January.
The February reading was the worst since October 2009.
Last month’s fall marked three full years of declines in producer prices, and there is no sign in sight of any relief as demand internally remains weak and export demand spotty and fluctuating, although exports to the US and Europe picked up strongly in February.
The PPI also declined 0.7% in February from January. In January, it fell 1.1% from the preceding month.
Some economists say the holiday break possibly contributed a little to that bigger than forecast fall, but others say the slide in commodity prices (iron ore, copper, oil etc) was probably a bigger factor.
China’s central bank has used the weak inflation to cut its key interest rates twice since last November, and has reduced the banks’ reserve ratio twice as well to try and make more money available for lending to small and medium business.
The biggest concern remains the intense deflation gripping manufacturing sectors of the economy.
"Producer prices remain in deflation due to the persistent overcapacity in many industrial sectors. The housing slump has led to excess supplies of steel, cement, glass and other goods,” said Moody’s Analytics before the release of the inflation figures yesterday.
“The drop in global oil prices is also putting downward pressure on energy costs. The government’s easing measures will encourage a rebound later in the year at the earliest."
