China consumer inflation slowest in a year, leaves room for more stimulus

February consumer inflation slowed in February Producer deflation deepened Inflation will not limit supportive monetary policy

BEIJING, March 9 (Reuters) – China’s annual consumer inflation slowed to the lowest rate in a year in February as consumers remained cautious despite abandoning strong pandemic controls in late 2022.

Combined with the persistence of producer deflation, also reported on Thursday, the data showed that price pressure had not become an obstacle to more government action to support the economic recovery from the COVID-19 disruption, analysts said.

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

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

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

“For monetary policy, which is focused on consolidating economic recovery and achieving sustained upward momentum, there is no constraint from an inflation rate that is within the policy target,” said Bruce Pang, chief economist for Greater China. at JLL, commenting on the data.

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Zhiwei Zhang, president of Pinpoint Asset Management, said the figures contradict other data showing significant strength in domestic demand.

“However, weak CPI inflation opens up room for the government to initiate more accommodative monetary policies,” 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 are suffering high inflation rates for decades, China’s diligent efforts to control COVID-19 last year disrupted production and suppressed demand, keeping price pressures in check. Economists expect inflation to strengthen in the coming months, largely thanks to the end of pandemic controls.

Reuters graphic JUANI IS WEAKENED

The yuan weakened on Thursday after the price data revived investor doubts about the pace of the recovery, which is facing the challenge of weakening foreign demand and a decline in domestic property.

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

The NBS attributed the slowdown in consumer price growth to a drop in demand after January’s Lunar New Year holidays. Prices of most fresh foods had fallen as a result of warm weather and abundant supplies, he said.

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

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

Producer deflation deepened and stretched into a fifth month.

The producer price index (PPI) in February fell 1.4% from a year earlier, driven mainly by softer commodity costs. That compared with the average expectation for a 1.3% decline in a Reuters poll and an annual contraction of 0.8% seen in January.

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

The economy delivered one of its weakest performances in decades last year, weighed down by three years of pandemic controls, property slumps and a blow to private enterprise.

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

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

Our Standards: The Thomson Reuters Trust Principles.