China’s Consumer Prices Gain in December After Brief Decline

China’s consumer prices rose in December after briefly declining in the previous month, while factory-gate deflation eased further, providing more evidence of the country’s economic recovery.

The consumer price index rose 0.2% last month from a year earlier, following a 0.5% decline in November, the National Bureau of Statistics data said Monday. The median forecast in a Bloomberg survey of economists was for it to be unchanged. Factory deflation narrowed, with the producer price index registering a 0.4% decline, compared with a 1.5% drop in November.

China’s Consumer Prices Gain in December After Brief Decline

The pick-up in inflation was largely driven by higher food costs. Pork prices, a key item in the country’s CPI basket, posted a smaller decline of 1.3% last month. Prices plunged 12.5% in November after hog supplies recovered from swine disease in the previous year.

“December inflation data, especially after adjusting for volatile pork price inflation, suggest neither significant inflation nor deflation risks, so we expect no policy response from Beijing,” Nomura Holdings Inc. economists led by Ting Lu wrote in a note.

Aside from food, energy prices are also rising as China suffers a severe cold spell, which has boosted power demand. Core inflation, which removes the more volatile food and energy prices, eased to 0.4% after remaining steady at 0.5% for several months.

What Bloomberg Economics Says...

“The headline CPI may fall back to deflation as food prices resume a downward trend when the cold weather passes. Nonetheless, we expect the fluctuations in prices to have little bearing on the central bank’s decision to start normalizing its policy this year.”

-- David Qu, China economist

For the full report, click here.

The economy’s recovery remained on track in December while showing signs of plateauing. Both the manufacturing and non-manufacturing purchasing managers’ indexes slid, but economists say the growth momentum stayed solid.

The recent coronavirus outbreak in Shijiazhuang, a city near Beijing, and sporadic cases around the country, could weigh on the growth and inflation outlook if lockdown restrictions are widened. For now, the impact on the broader economy is seen as limited.

The People’s Bank of China has signaled it wants to gradually reduce the pace of credit growth in order to stabilize debt levels in the economy, while avoiding any sharp turn in policy.

Governor Yi Gang reiterated that stance in an interview with state-run Xinhua News Agency on Friday, saying monetary policy in 2021 should be stable. He added that China would have relatively little problem from exiting its stimulus measures as the central bank avoided the flood of policy steps taken elsewhere, like negative interest rates and quantitative easing, according to Xinhua.

“We believe the People’s Bank of China will keep interest rates on hold,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group in Hong Kong. “In 2021, the authorities will rather use fiscal policy to stabilize growth.”

©2021 Bloomberg L.P.

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