China’s February factory inflation slows, consumer price growth hits more than four-year high

FAN Editor
A woman selects vegetables at a supermarket in Beijing
A woman selects vegetables at a supermarket in Beijing, China February 4, 2018. REUTERS/Jason Lee

March 9, 2018

BEIJING (Reuters) – China’s producer price inflation eased to the slowest pace in 15 months in February, as the cost of raw materials and other inputs rose at a milder pace, pointing to a potential softening in industrial sector profits.

Consumer inflation picked up to highest since November 2013, however, largely due to higher food prices as China celebrated the long Lunar New Year holidays, official data showed on Friday.

Data from China early in the year is typically treated with caution by economists due to business and price distortions caused by the timing of the week-long Lunar New Year celebrations, which fell in late January 2017 but started in mid-February this year.

Analysts expect investors may not get a clearer picture of China’s economic health until first-quarter data is released in April.

The producer price index (PPI) rose 3.7 percent in February from a year earlier, compared with 4.3 percent in January, the National Bureau of Statistics (NBS) said on Friday.

China’s factory-gate inflation has now softened for 4 months in a row, suggesting that profits for miners, steel makes and manufacturers will start to moderate after surging to their strongest levels in years in 2017.

That would give the country’s “smokestack” industries, which are dominated by state-owned giants, less cash flow to service and pay down their debts, a key policy goal for Beijing.

Analysts polled by Reuters had expected February producer inflation would cool to 3.8 percent from January’s 4.3 percent.

On a month-on-month basis, the PPI fell 0.1 percent.

For the combined period of January and February, PPI rose 4.0 percent from a year ago.

The consumer price index (CPI) rose 2.9 percent from a year earlier, more than expectations and quickening from January’s gain of 1.5 percent. Analysts had expected a pick-up to 2.5 percent.

On a month-on-month basis, the CPI rose 1.2 percent.

CPI rose 2.2 percent for January-February period.

The core consumer price index, which strips out volatile food and energy prices, rose 2.5 percent in February, faster than 1.9 percent in January.

“The year-on-year increase in CPI is expected to ease in March as holiday effects recede,” Sheng Guoqing, a statistics bureau official said in a commentary accompanying the data release.

The food price index rose 4.4 percent from a year earlier due to a low base last year, after falling 0.5 percent in January. Non-food prices rose 2.5 percent, compared with 2.0 percent in the previous month.

Much of the pick up in consumer prices was likely due to higher food and travel costs during the long holiday.

As widely expected, China announced a 2018 consumer inflation target of “around 3 percent”, in line with last year, at its annual parliament meeting that started this week.

But most analysts do not expect retail inflation to reach that level, even though higher producer prices over the last year are slowly percolating through to consumers. Consumer inflation last year softened to 1.6 percent despite forecast-beating economic growth.

Producer inflation is expected to continue to moderate in coming months as property investment cools, reducing demand for products from steel and cement to appliances and furniture.

(Reporting by Beijing Monitoring Desk; Editing by Kim Coghill and Sam Holmes)

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