BEIJING - China’s consumer and producer prices remained subdued in February as food and commodities costs eased, suggesting the country’s reopening will not be adding to global inflation pressures.
The consumer price index (CPI) rose 1 per cent in February from a year earlier, China’s National Bureau of Statistics (NBS) said on Thursday, the lowest level since February 2022 and well below estimates.
Less volatile core inflation eased to 0.6 per cent from 1 per cent, while producer prices stayed in deflation, dropping 1.4 per cent.
“China is deflationary” given how much high unemployment and the ongoing property slump are weighing on costs, said Mr Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group. The country’s muted price pressures show the fear of the country’s reopening boosting global inflation does not stand, he added.
China’s economic rebound has progressed rapidly, with demand for services jumping and home sales showing some signs of stabilisation.
Still, inflation has been muted as food costs fell after the Chinese New Year holiday and commodity prices like crude oil declined.
Falling demand after the holiday and sufficient supply led to the weak CPI figure, Mr Dong Lijuan, NBS chief statistician, said in a statement accompanying the data. He added that the earlier Chinese New Year holiday – it fell in January 2023, instead of February – meant the base of comparison was higher.
Bloomberg Economics analyst Eric Zhu said: “China’s mild CPI inflation and deflation in factory-gate prices are likely to continue in coming months. This means inflation won’t be a concern for policymakers in the near term. But we expect pressures to build in the second half, with CPI gains approaching 3 per cent in the fourth quarter as stronger demand stokes prices.
“In the bigger picture, though, inflation is unlikely to get out of hand, given the government’s target for modest gross domestic product growth of 5 per cent this year.”
The CPI data may also keep inflation off the minds of policymakers for now as they continue to navigate monetary support for the recovery.
People’s Bank of China governor Yi Gang said last week inflation will remain under control in 2023, while suggesting that interest rates are appropriate – a sign that monetary policy will largely be stable.
He hinted at supporting the economy in other ways, saying cuts to the reserve requirement ratio remain effective.
“Considering the sharply cooling inflationary pressure, monetary policy could be loosened further,” said Mr Ming Ming, chief economist at Citic Securities.
China could lower the reserve requirement ratio, the amount of cash banks must keep in reserve, by 25 basis points in April, he said. BLOOMBERG
