Chinese consumer price inflation slows sharply as food prices fall

Photo by Scott Barbour/Getty Images

Chinese consumer price inflation (CPI) fell sharply in February, driven down by sharply lower food prices.

According to China’s National Bureau of Statistics (NBS), CPI fell by 0.2% for the month, leaving the year-on-year increase at just 0.8%.

The annual rate was well below the 2.5% pace of January and missed expectations for a moderation to 1.7%.

It was the equal lowest year-on-year increase since November 2009, tying the rate reported in January 2015.

Helping to explain the sharp deceleration, food prices fell by 4.3% from a year earlier, largely as a result of distortions created by the Lunar New Year holiday. They previously increased by 27% in the 12 months to January.

Pork prices — a staple of the Chinese diet — fell by 0.9% from a year earlier, reversing the 2.7% gain reported in January.

Excluding food, prices rose by 2.2% over the year, down from the 2.5% rate reported previously.

However, while CPI slowed sharply, producer price inflation (PPI) continued to surge, posting the fastest increase since late 2008.

The NBS said factory gate prices rose by 0.6% during the month, taking the year-on-year increase to 7.8%.

That was the fastest increase reported since September 2008, and marginally beat forecasts for a rise to 7.7%. It was also higher than the 6.9% pace of January.

Mining costs soared by 36.1% from a year earlier, up from 31% in January, while raw materials prices lifted from 12.9% to 15.5% year-on-year.

While PPI continued to quicken, some suggest the high-point in the current price cycle may be nearing or already at its peak.

“Everything has peaked in the first quarter — nominal GDP growth, corporate earnings, PPI inflation,” Larry Hu, head of China economics at Macquarie Securities, told Bloomberg. “The strong numbers we are seeing now are not sustainable.

Despite the divergent performance between consumer and producer price inflation in February, there has been no reaction in financial markets.

This is perhaps reflective of the view that much like the China’s trade report for February, released on Wednesday, the wild swings were more down to distortions created by the timing of the Lunar New Year, particularly for consumer prices.

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