China's consumer inflation hits 2.3%

BEIJING • China's consumer inflation rose to 2.3 per cent last month, its highest in nearly two years, official data showed yesterday, in a positive sign for demand in the world's second-largest economy.

The rise in the consumer price index (CPI) released by the National Bureau of Statistics was the largest since July 2014.

The producer price index (PPI), which measures prices of goods at the factory gate, fell 4.9 per cent year on year, meeting expectations and an improvement on January's 5.3 per cent drop.

But it was the 48th consecutive monthly fall as overcapacity in manufacturing drags on China's growth, with the protracted PPI declines - now extending to four years - boding ill for industrial prospects.

Moderate inflation can be a boon to consumption as it pushes buyers to act before prices go up, while falling prices encourage shoppers to delay purchases and firms to put off investment, which can hurt growth.

Analysts expected a rise in CPI due to a traditional surge in demand for the week-long holiday known as the Spring Festival in China, as well as unusually cold winter weather last month pushing up food prices.

Analysts with ANZ Research noted that the spike in food prices was temporary, so that consumer inflation was likely to be "mild" in the coming months. As the inflation rate was "significantly below the government's 3 per cent target", they added, the central bank "will need to inject more liquidity into the real economy".

The inflation figures are a positive sign for China's economy, which saw its slowest growth rate in a quarter of a century last year. Beijing is striving to effect a difficult transition in its economic model, away from a reliance on exports and fixed-asset investment towards one driven by consumers.

Nomura analyst Zhao Yang said the inflation figures did not "limit room for further monetary easing", noting that the PPI weakness suggested "industrial growth momentum is softening".

But analyst Julian Evans-Pritchard of Capital Economics said most of the PPI index was made up of industrial inputs, so that much of its decline could be attributed to depressed global commodity prices.


A version of this article appeared in the print edition of The Straits Times on March 11, 2016, with the headline 'China's consumer inflation hits 2.3%'. Subscribe