China economy

Inflation In China Surges Again, While Producer Prices Climb Out Of Deflation

All of this comes with a caveat.

Consumer prices in China accelerated at a much hotter-than-anticipated rate in January, the NBS said Monday.

CPI rose 5.4% last month, well ahead of the 4.9% the market was expecting, but still squarely within the range of estimates from nearly two dozen economists surveyed (+4% to +5.9%).

By now, most readers likely know the story. Pork prices continue to soar, and rose 116% YoY in January. On a MoM basis, prices actually fell in December, but rose 8.5% sequentially last month. Pork accounted for 2.76 percentage points of the headline inflation read.

Perhaps just as notable is the first positive PPI print in months. Producer prices rose 0.1% in January, as China climbed out of factory-gate deflation for the first time since last summer.

That’s good news considering industrial companies’ profits plunged again in December, a disappointing outcome that may have been mitigated in January by the fading deflationary impulse in wholesale prices.

As is the case with most data out of Asia right now, all of this comes with a caveat that the virus impact has yet to manifest itself fully in any of the numbers.

It’s worth noting that the ongoing acceleration in consumer prices comes a time when the PBoC is compelled to embark on a deliberate easing push in order to offset the effects of the Wuhan epidemic on the world’s second-largest economy.

There were already concerns about the PBoC’s piecemeal easing efforts to cushion the blow from the trade war during a time when domestic prices were surging. Now, that piecemeal easing will need to be more forceful if Beijing hopes to put a floor under the economy in the wake of the outbreak.

Obviously, policymakers will not be constrained by rising pork prices in their efforts to ensure things don’t fall apart for the entire economy as the impact of the virus starts to show up in the data. Nevertheless, it’s worth keeping yourself apprised of the most recent trajectory in the numbers.


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