China Is Releasing An Important Inflation Report In A Few Hours

chinese man lie on grapefruit

Photo: REUTERS

Chinese inflation data for February is out at 8:30 p.m. ET.Analysts polled by Bloomberg are looking for consumer prices to rise 3 per cent on the year, compared with 2 per cent the previous month.

The reason this data is important is becauseĀ  consensus reflects a rising inflation trend, one that policymakers are always watching closely.

Producer prices are expected to fall 1.5 per cent year-over-year (YoY), compared with a 1.6 per cent decline last month.

Bank of America’s Ting Lu expects CPI to rise 3 per cent, and PPI to fall 1.2 per cent. Inflation like other data coming out around this time of the year is expected to be influenced by the Chinese New Year holiday.

“Inflation pressures in China still remain subdued, though the different timing of the Chinese New Year (CNY) holiday would distort YoY CPI inflation downwards in Jan but upwards in Feb. The CNY was from 10 Feb this year but was on 23 Jan in 2012, and food prices usually increase sharply prior to the CNY and normalize afterwards.”

At the National People’s Congress the government officially set the inflation target at 3.5 per cent. Lu doesn’t think inflation is a “big threat” this year and doesn’t expect policymakers to tighten credit.

Is this an accurate measure of inflation?

Chinese inflation volatility chart

Photo: Societe Generale

Societe Generale’s Wei Yao writes that in CPI, food inflation is the most volatile while housing and service inflation is the most “problematic”.She also writes that PPI and CPI “move in tandem but without any clear leading or lagging relationship”.

Yao says consumer prices alone are not a good gauge of overall inflation. She thinks the GDP deflator captures more inflation since China’s economy is investment heavy and there is a “disconnect between capital and consumer goods”.

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