China economy

Mainland inflation down but signs of rising pressure

Consumer price increases slow year on year in January but higher output costs to be passed on

PUBLISHED : Saturday, 09 February, 2013, 12:00am
UPDATED : Saturday, 09 February, 2013, 4:51am

The mainland's inflation rate eased from December's seven-month high to just 2 per cent year on year in January but economists warn of greater inflationary pressure ahead.

According to the National Bureau of Statistics, consumer prices last month were 2 per cent higher than the same period last year and down from 2.5 per cent in December. The figure was in line with market expectations.

However, inflation accelerated on a month-on-month basis at 1 per cent in January, the highest since February last year, mainly due to cold weather that hit food production and increased prices.

"Food prices jumped 2.8 per cent in a month … fresh vegetable prices climbed further in January by 12.7 per cent," senior bureau statistician Yu Qiumei said.

"Constant low temperatures and rain in the south as well as smog in the north and heavy snow in some areas have affected the production and supply of some fresh produce such as vegetables, causing a significant increase in prices," Yu said, adding that vegetable prices have risen 37 per cent since October.

Yu said the government was aware of the fluctuation in food prices and had imposed measures to ensure stable supply.

"Inflation declined in year-on-year terms but there are signs that underlying inflation pressures are starting to build," said Alaistair Chan, an economist at Moody's Analytics.

Chan said producer price data had shown a steady upward trend since September, signalling a recovery in raw material prices, which would be passed on to consumers by mid-year.

Bank of America analysts Zhi Xiaojia and Ting Lu said food prices usually surged before the Lunar New Year and normalised afterwards.

With Lunar New Year falling in January last year and February this year, they said the index should dip in January and jump this month by 3 per cent or more, before weakening again in March to 2.3 to 2.5 per cent.

The analysts said the headline year-on-year inflation rate would remain mostly below 3 per cent in the first half of the year but could hit the 3.5 per cent government inflation target, or even 4 per cent in some months in the second quarter.

"Economic fundamentals support higher consumer and industrial prices in 2013 as final demand is picking up, helped by policy easing since mid-2012, alleviated fear of a euro-zone break-up, and monetary loosening in the US," they said in a note.

"Some other factors may also add to the undesired rise in year-on-year CPI inflation to above-trend levels in the second half, such as base effects and higher pork prices and vegetable prices on reduced supply after those prices crashed in 2012."