- Consumer inflation slows in February
- February producer deflation worsened
- Inflation will not limit supportive monetary policy
BEIJING, March 9 (Reuters) – China’s annual consumer inflation slowed to its lowest rate in a year in February as consumers remained cautious despite the abandonment of strict pandemic controls at the end of 2022.
Combined with continued producer deflation, also reported on Thursday, the data showed that price pressure had not become an obstacle to more government action to support economic recovery from the COVID-19 disruption, said analysts.
The consumer price index (CPI) in February was 1.0% higher than a year earlier, rising at the slowest pace since February 2022, the National Bureau of Statistics (SNB) said.
The result was well below the median estimate of 1.9% in a Reuters poll and the 2.1% annual rise seen in January.
The government is aiming for an average level of consumer prices this year about 3% higher than in 2022.
“For monetary policy, which focuses on consolidating the economic recovery and achieving stable upward momentum, there is no constraint of an inflation rate that is within the policy target,” said Bruce Pang, chief economist for greater China at JLL, commenting on the data.
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Zhiwei Zhang, chairman of Pinpoint Asset Management, said the figures were at odds with other data that showed considerable strength in domestic demand.
“Nevertheless, the low CPI inflation paves the way for the government to launch more monetary easing policies,” he said.
However, economists generally do not expect big changes in monetary policy this year. The government cut bank reserve requirements twice last year to stimulate the economy.
While other countries have suffered from high inflation rates for decades, strenuous efforts to control COVID-19 in China last year disrupted production and suppressed demand, keeping price pressure contained. Economists expect inflation to strengthen in the coming months, mainly thanks to the end of pandemic controls.
THE YUAN WEAKENS
The yuan weakened on Thursday as price data revived doubts among investors about the pace of the recovery, which faces the challenge of weakening foreign demand and a slowdown in domestic real estate. .
Parliament has set what analysts say is a conservative growth target for 2023 gross domestic product of around 5%, a sign policymakers are aware of economic headwinds.
The BES attributed the slowdown in consumer price growth to weaker demand after the Lunar New Year holiday in January. Most fresh food prices have fallen due to hot weather and ample supply, he said.
The CPI, which is seasonally adjusted, fell 0.5% from the previous month, missing the forecast for a 0.2% gain. The monthly increase in the CPI in January was 0.8%.
Core annual consumer inflation, which excludes volatile food and energy prices, was 0.6% in February, down from 1.0% in January.
Producer deflation worsened and lasted into a fifth month.
The producer price index (PPI) in February was down 1.4% from a year earlier, mainly due to lower commodity prices. That compares with the median expectation of a 1.3% drop in a Reuters poll and a 0.8% annual contraction seen in January.
Since October, producer prices have been consistently lower than a year earlier.
The economy gave one of its weakest performances in decades last year, squeezed by three years of pandemic containment, the housing downturn and a crackdown on private enterprise.
To support growth, the government plans to stick to its usual infrastructure spending playbook.
Reporting by Liangping Gao and Ryan Woo; Editing by Bradley Perrett
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