Food prices feeding inflation growth
Print Edition
CHINA’S inflation growth accelerated to a five-month high in January due to high food prices, relieving certain deflationary pressure, but economists say prices may fall again due to the weak economy.
The Consumer Price Index, the main gauge of inflation, expanded 1.8 percent from a year earlier last month, up from the increase of 1.6 percent in December, the National Bureau of Statistics said yesterday.
The rise was largely a result of higher food costs, which account for nearly a third of the CPI basket. They grew 4.1 percent in January, much faster than the rise of 2.7 percent in December and November’s 2.3 percent.
Prices in the non-food sector rose 1.2 percent, only a bit higher than the pace of 1.1 percent registered a month earlier.
Yu Qiumei, a bureau researcher, said seasonal factors and January’s extreme cold disrupted supplies, leading to higher prices for fresh vegetables in particular.
Vegetable prices jumped 14.7 percent year on year last month, while meat and processed meat products advanced 10.8 percent. Pork surged 18.8 percent due to rising demand because of the Spring Festival celebrations.
Liu Ligang, chief China economist at Australia & New Zealand Banking Group Ltd, said that, despite the acceleration, China’s inflation remained weak, and the country may have to deal with rising deflationary pressure in the months to come.
“Inflation growth will likely moderate again in March,” Liu said.
“The rise in food prices should be temporary as seasonal factors dissipate. Meanwhile, as commodity prices remain depressed, factory-gate prices will likely continue to fall and pass the deflationary pressure to the consumer end.”
The Producer Price Index, the measurement of inflation at the factory gate and a harbinger of future prices for the consumer, declined 5.3 percent in January.
It recovered a little from the contraction of 5.9 percent in December but still extended the negative stream for the 47th consecutive month.
“Overall, deflationary pressure remains and leaves room for further monetary policy easing,” said Wendy Chen, a research analyst at Nomura.
To support the economy, Chen said, the central bank may eventually cut both reserve requirement ratio and interest rates to lower financial costs.
“We expect four reserve requirement ratio cuts to allow banks more capital at hand, and two policy rate decreases in 2016,” Chen said.
The recent activity data also showed weakening economic vitality. China’s trade slumped more than expected in January, with exports losing 6.6 percent year on year and imports sliding 14.4 percent.
China’s manufacturing sector and services sector also weakened.
The official Purchasing Managers’ Index, a comprehensive gauge reflecting operational conditions in largely state-owned manufacturing companies, decreased 0.3 points from a month earlier to 49.4 in January, marking contracting industrial activity for six consecutive months.
The official non-manufacturing PMI, a counterpart for the services sector, also retreated to 53.5 last month, down from 54.4 in December.
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