China’s consumer price index moved back into positive territory in December, raising hopes that the country’s economic recovery will further bolster demand at a time when core inflation remains weak.
The country’s consumer price index beat expectations to edge 0.2 per cent higher year-on-year in December after falling 0.5 per cent a month earlier, with the gains largely driven by food prices.
Price growth in China has been anaemic over recent months despite the country’s rapid recovery from the coronavirus, which has been powered by industrial production as new cases have remained low.
China’s gross domestic product is expected to have grown 2.1 per cent last year, compared with anticipated contractions in other economies.
Core inflation, which excludes food and energy prices, fell to 0.4 per cent year-on-year in December — lower than at any point since the coronavirus outbreak began and its weakest level since early 2010.
Persistently low levels of inflation have created a conundrum for policymakers as other areas of the economy continue to heat up. The People’s Bank of China cut benchmark lending rates last year, but the government has since moved to constrain the property sector.
“With economic activity set to remain strong and underlying inflation likely to rebound, we think the PBOC will tighten policy this year,” said Julian Pritchard-Evans, senior China economist at Capital Economics.
He added, however, that consumer prices might return to deflation in coming months on the back of sharp rises in pork prices last year.
The outbreak of African swine fever in the summer of 2018 led to the culling of millions of pigs, which raised the price of pork — one of the most important components in China’s consumer price index. In July, pork prices increased 86 per cent year-on-year.
China’s factory gate prices, which were in negative territory for most of last year, fell by 0.4 per cent year-on-year in December, beating economists’ expectations. In month-on-month terms, the producer price index gained 1.1 per cent, the fastest rate in more than four years.
Iris Pang, chief economist for Greater China at ING, suggested the increase was partly driven by an outbreak of coronavirus in Hebei province, which disrupted supply. China reported on Monday that new cases had surpassed 100 for the first time since July, with nearly all of the new domestic cases in Hebei.
But Ms Pang added that both CPI and PPI should gain in 2021.
“After the Chinese New Year, we should see demand picking up,” she said.
Source: Economy - ft.com
