Factory prices hit two-year high in China as consumer inflation eases
Factory gate prices in China have risen to their highest level since November 2018, official data showed overnight on Wednesday.
According to the National Bureau of Statistics, China's producer price index rose 1.7% year-on-year in February, compared to January’s 0.3% increase. Helped by improving export orders, February’s reading was above most analyst forecasts, for 1.5%.
The consumer price index picked up only marginally in comparison, from a 0.3% decline year-on-year in January to 0.2% fall in February, although that too was better than expectations, for -0.4%.
February marked the second consecutive month of CPI deflation, driven by falling prices for food and non-food items alongside subdued consumer demand. Food prices were down 0.2% year-on-year, the first fall in three months.
On a monthly basis, consumer prices rose by 0.6% however, following a 1% rise in January.
David Madden, market analyst at CMC Markets UK, said: “The surge in prices at the factory level adds weight to the argument that higher inflation is in the pipeline, as increases in costs at the factory level are likely to be passed on to consumers.
“Even though consumer demand appears to still be weak, [the CPI] at least is improving.”
Julian Evans-Pritchard, senior China economist at Capital Economics, said: “We do not think the recent period of consumer price deflation is likely to persist. Shifting pork price base effects will nudge up food inflation, a tightening labour market will push up core inflation and energy inflation will rebound thanks to rising oil prices.
“Given that officials have signalled a hawkish tilt in recent weeks we think the People’s Bank of China will tighten policy this year.”
TD Securities said: “Seasonal factors, due to the Lunar New Year, likely resulted in the 0.6% month-on-month increase in CPI, even as the year-on-year reading declined due to the high base in February last year. Wholesale pork prices fell sharply over February…which more than offset higher prices of fresh vegetables.
“As reflected in China’s February PMI data, price pressures remained acute, with both input and output prices staying elevated, which point to increasing producer PPI ahead.”