China’s slowest consumer inflation in general, leaves room for more stimulus

  • Consumer price inflation slowed in February
  • Product shrinkage deepened in February
  • Supportive monetary policy will not be constrained by inflation

BEIJING (Reuters) – Annual consumer price inflation in China slowed to its lowest rate in a year in February as consumers remained cautious despite the abandonment of tough pandemic controls in late 2022.

Along with continued producer contraction, also reported on Thursday, the data showed that price pressure has not become an obstacle to further government action to support the economic recovery from the COVID-19 disruption, analysts said.

The National Bureau of Statistics said its Consumer Price Index (CPI) in February was 1.0% higher than a year earlier, rising at the slowest pace since February 2022.

The result was well below the median estimate of 1.9% in a Reuters poll and the 2.1% annual increase recorded in January.

The government is targeting an average level of consumer prices this year that will be around 3% higher than in 2022.

said Bruce Pang, chief economist for Greater China at JLL, commenting on the data.

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Zhiwei Zhang, head of Pinpoint Asset Management, said the numbers are in contrast with other data that showed significant strength in domestic demand.

“However, weak CPI inflation opens room for the government to launch more monetary easing policies,” he said.

However, economists generally do not expect big moves in monetary policy this year. The government cut bank reserve requirements twice last year to stimulate the economy.

While other countries have been suffering from decades-old inflation, strenuous efforts to control COVID-19 in China last year disrupted production and slashed demand, containing price pressure. Economists expect inflation to pick up in the coming months, thanks mostly to the end of pandemic controls.

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Yuan awakens

The yuan weakened on Thursday as price data revived investor doubts about the pace of the recovery, which is challenged by weakening foreign demand and a slump in domestic real estate.

Parliament has set what analysts say is a conservative 2023 growth target for GDP of around 5%, a sign that policymakers are aware of economic headwinds.

The National Bureau of Statistics attributed the slowdown in consumer price growth to lower demand after the Lunar New Year holiday in January. She added that most of the prices of fresh foodstuffs have declined as a result of the warm weather and ample supplies.

The consumer price index, seasonally adjusted, fell 0.5% from the previous month, missing expectations for a 0.2% gain. The monthly increase in the CPI in January was 0.8%.

The annual core consumer inflation rate, which excludes volatile food and energy prices, was 0.6% in February, compared with 1.0% in January.

Product contraction deepened and extended to the fifth month.

The producer price index in February fell 1.4% from a year earlier, largely driven by a decline in commodity costs. That compares with a median forecast of a 1.3% decline in a Reuters poll and an annual contraction of 0.8% in January.

Since October, producer prices have been consistently lower than they were a year ago.

The economy delivered one of its weakest performances in decades last year, squeezed by three years of controlled pandemics, property declining and a crackdown on private business.

To boost growth, the government plans to stick to the usual playbook of infrastructure spending.

(Reporting by Liangbing Zhao and Ryan Wu) Editing by Bradley Perrett

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