China’s consumer inflation slowest in a year, making way for more stimulus

  • In February, consumer inflation fell
  • Feb. producer deflation deepened
  • Inflation will not limit supportive monetary policy

BEIJING, March 9 (Reuters) – China’s annual consumer inflation fell to the lowest rate in a year in February as consumers remained cautious despite the abandonment of strong pandemic controls late in 2022.

Combined with persistent producer deflation, which was also reported on Thursday, the data showed that price pressures had become no obstacle to more government measures to support economic recovery from the COVID-19 disruption, analysts said.

The consumer price index (CPI) in February was 1.0% higher than a year earlier and rose 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 is targeting an average consumer price level this year that is around 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,” Bruce Pang, chief economist for Greater China at JLL, said in a comment on 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 initiate more monetary policy easing,” he said.

However, economists generally do not expect major monetary policy movements this year. The government cut the bank’s reserve requirements twice last year to stimulate the economy.

While other countries suffer from decades of high inflation rates, a strained effort to control COVID-19 in China last year disrupted production and suppressed demand, keeping price pressures down. Economists expect inflation to strengthen in the coming months, largely thanks to the end of pandemic controls.

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The yuan weakened on Thursday as the price data revived investor doubts about the pace of the recovery, which faces the challenge of weakening foreign demand and a domestic property slump.

Parliament has set what analysts say is a conservative 2023 gross domestic product growth target of around 5%, a sign that politicians are aware of economic headwinds.

The NBS attributed the slowing growth in consumer prices to falling demand following January’s Lunar New Year holiday. Prices of most fresh foods had fallen as a result of warm weather and abundant supply, it said.

Seasonally adjusted CPI fell 0.5% from a month earlier, missing forecasts for a 0.2% rise. The monthly CPI increase in January was 0.8 per cent.

Annual core consumer inflation, which excludes volatile food and energy prices, was 0.6% in February, compared with January’s 1.0%.

Producer deflation was deepened and extended to a fifth month.

The producer price index (PPI) in February fell 1.4% from a year earlier, mainly driven by softer commodity costs. That compared with the median expectation of a 1.3% drop in a Reuters poll and an annual decline of 0.8% seen in January.

Since October, producer prices have been consistently lower than the previous year.

The economy produced one of its weakest performances in decades last year, pressured by three years of pandemic controls, the real estate slump and a crackdown on private enterprise.

To bolster growth, the government plans to stick to its usual playbook on infrastructure spending.

Reporting by Liangping Gao and Ryan Woo; Editing by Bradley Perrett

Our standards: Thomson Reuters Trust Principles.

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