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China’s official inflation gauges outperformed expectations in January with the country’s producer price index growing at the fastest pace since August 2011 as food prices pushed up the consumer prices index ahead of the lunar new year. Economists in the region gave their take on the figures.
Julian Evans-Pritchard, China economist for Capital Economics, expects consumer and producer price inflation to peak soon, noting:
Looking ahead, we don’t expect such high rates of inflation to last. The base effects that have boosted inflation in recent months are soon going to go into reverse. Meanwhile, tighter monetary policy, slowing income growth and cooling property prices should keep broader price pressure contained over the medium-term.
Betty Wang, senior China economist for ANZ, said that month-on-month PPI growth in January showed moderation and momentum may not be “as strong as at first glance”:
We think the People’s Bank of China has gradually shifted to a tightening bias and policy rates (ie 7-day repo rate) are likely to gradually move higher this year. However, we do not think the economy is solid enough to counter any broad tightening and policy makers should be careful in directing market expectations. We continue to expect the PPI to soften in H2 after surging in H1, posting downside risks to the current PPI-driven economy.
Zhou Hao, senior emerging markets economist Asia for Commerzbank, said the pick-up in consumer prices was largely related to the Lunar New Year, and that consumer inflation had yet to feel much impact from producer price growth:
We we have not seen significant pass through effect from PPI to CPI inflation yet, suggesting that the strong rebound in PPI inflation is a reflection of proactive fiscal policies. Given that the Chinese Communist Party (CCP) will hold the 19th Congress late this year, local governments are keen to deliver decent growth figures. Against this backdrop, the infrastructure investment pipeline will remain solid.