Chinese inflationary pressures are weakening again

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  • Chinese consumer and producer price inflation both slowed in the year to January.
  • The timing of Lunar New Year holidays may have contributed to the weakness.
  • A slowdown in factory-gate inflation could have ramifications for global inflationary pressures given the large size of China’s export sector.

  • Chinese inflationary pressures are softening, especially for consumers.

    According to China’s National Bureau of Statistics (NBS), consumer price inflation (CPI) grew by 1.5% in the year to January, in line with expectations and below the 1.8% level reported in December.

    It was the weakest annualised increase since July 2017.

    Food prices fell by 0.5% over the year, an acceleration on the 0.4% decline reported previously. Pork prices, a staple of the Chinese diet, tumbled by 10.6%, down from 8.3% seen in the 12 months to December.

    Non-food inflation also softened from a year earlier, rising by 2.0%, down from 2.4% previously.

    The timing of Lunar New Year holidays likely contributed to the weakness in inflation, arriving in late January last year as opposed to mid-February this year.

    Like CPI, upstream price pressures also eased with producer price inflation (PPI) slowing to 4.3% from a year earlier, down from 4.9% in December and slightly below economists forecasts for a smaller deceleration to 4.4%.

    It was the weakest year-on-year increase since November 2016.

    Raw materials prices grew by 7.3% over the year, below the 9.1% increase seen in the 12 months to December. Prices had been growing at an annual pace of 11.9% in September. The deceleration reflects the higher base effect created by prior strength in commodity prices.

    There has been little market reaction to the data, although the slowdown in PPI may have ramifications for global inflationary pressures given the large size of China’s export sector.

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