Chinese consumer inflation lowest in a year, leaves room for more stimulus

BEIJING, March 9 (Reuters) – Annual consumer inflation in China slowed to a year-on-year low in February as consumers remained cautious despite the abandonment of tight pandemic controls at the end of 2022.

Combined with continued producer deflation, also reported on Thursday, the data showed that price pressures had not become a barrier to more government action to support economic recovery from the COVID-19 disruption, analysts said.

The consumer price index (CPI) was 1.0% higher in February than a year earlier and rose at its slowest pace since February 2022, according to the National Bureau of Statistics (NBS).

The result was well below the 1.9% average estimate in a Reuters poll and the 2.1% annual increase seen in January.

The government aims for an average level of consumer prices this year about 3% higher than in 2022.

“For monetary policy, which is aimed at consolidating the economic recovery and achieving stable upward momentum, there is no constraint on an inflation rate that is within the policy objective,” said Bruce Pang, JLL’s chief economist for Greater China. . facts.

Zhiwei Zhang, president of Pinpoint Asset Management, said the numbers conflicted with other data that showed significant strong domestic demand.

“Nevertheless, weak CPI inflation offers room for the government to launch more monetary easing measures,” he said.

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

While other countries have struggled with decades of high inflation rates, strenuous efforts to contain COVID-19 in China last year disrupted production and suppressed demand, limiting price pressures. Economists expect inflation to pick up in the coming months, mainly thanks to the end of pandemic controls.

YUAN WEAKER

The yuan weakened on Thursday as price data revived investor doubts about the pace of the recovery, who face the challenge of weakening foreign demand and a downturn in the domestic real estate sector.

According to analysts, parliament has set a conservative growth target for gross domestic product in 2023 of around 5%, a sign that policymakers are aware of economic headwinds.

The NBS attributed the slowing growth in consumer prices to falling demand after the New Year holiday in January. Most fresh food prices had fallen due to the warm weather and abundant supply, it said.

The CPI, which is seasonally adjusted, fell 0.5% from a month earlier, missing the forecast of a 0.2% increase. The monthly CPI increase in January was 0.8%.

Annual core consumer inflation, excluding volatile food and energy prices, was 0.6% in February, compared to 1.0% in January.

Producer deflation deepened and extended to a fifth month.

The producer price index (PPI) was 1.4% lower in February than a year earlier, largely due to lower raw material costs. That compared to the average expectation for 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 a year earlier.

The economy performed one of its weakest in decades last year, weighed down by three years of pandemic controls, the real estate crisis and a crackdown on private businesses.

To bolster growth, the government intends to stick to its usual roadmap of infrastructure spending.

Reporting by Liangping Gao and Ryan Woo; Edited by Bradley Perrett

Our Standards: The Thomson Reuters Principles of Trust.