China’s prices up in Feb on holiday spending
We continue to expect inflation to remain relatively low and still see disinflationary pressures in the economy. To offset headwinds to economic growth, we expect monetary policy to be loosened further.
BEIJING: China’s consumer prices rose faster than economists forecast in February after the central bank stepped up policy easing and the Lunar New Year holiday pushed up food and transportation costs.
The consumer- price index climbed 1.4 per cent from a year earlier, compared with the median projection for a one per cent increase in a survey of analysts by Bloomberg News. Producer prices fell 4.8 per cent, extending a record stretch of declines to 36 months, driven by weaker commodity prices.
A sustained pickup in consumer inflation would suggest companies are regaining some pricing power after the People’s Bank of China cut benchmark borrowing costs twice since November and pared banks’ reserve requirements last month. It may be too early to conclude deflation risks have abated as the Lunar New Year holiday, which fell in February, raised prices as families spent on feasts and travel in their once- ayear binge.
“We continue to expect inflation to remain relatively low and still see disinflationary pressures in the economy,” Zhao Yang, chief China economist at Nomura Holdings in Hong Kong, wrote in a note.
“To offset headwinds to economic growth, we expect monetary policy to be loosened further.” Underscoring the economy’s challenges, China saw a ‘ relatively big’ decline in newly created jobs in January and February compared with the same period a year earlier, Yin Weimin, Minister of Human Resources and Social Security, said at a briefing in Beijing last Tuesday.
Still, Yin said he’s confident China can meet the goal of
Zhao Yang, chief China economist at Nomura Holdings in Hong Kong
creating 10 million urban jobs this year.China’s government set the consumer inflation target at three per cent this year in its annual work report last week. That’s seen as an ‘ upper limit,’ Zhu Haibin, chief China economist at JPMorgan Chase in Hong Kong, wrote in a note before the data release. “The current lowinflation environment will open room for resource pricing reform as well as monetary easing.”
The yuan rose while the Shanghai Composite Index fell. The pickup in CPI gains is mainly attributed to the Chinese New Year effect, said Yu Qiumei, senior statistician at the NBS. Food prices rose during the holiday, travel costs shot up and services companies raised charges as migrant workers went back home, Yu said in a statement on the statistics bureau’s website. Premier Li Keqiang set a goal for economic growth of about seven per cent for 2015, the lowest in more than 15 years, last week in his presentation to the annual gathering of China’s legislature.
The risk of deflation in Japan and Europe is greater than in China right now, PBOC Deputy Governor Yi Gang said in Beijing last Tuesday ahead of the data release. While inf lation is low, it “will remain in positive territory,” he said.
The PBOC will cut benchmark deposit and lending rates again next quarter as the economy slows, according to economists surveyed by Bloomberg. The median forecast is for a deposit rate of 2.25 per cent and a lending rate of 5.10 per cent in the April to June period, the Mar 2 to Mar 3 survey showed.
“Further monetary policy easing will be needed to fight against rising deflation risk” as the CPI heads back toward one per cent, said Zhou Hao, a Shanghaibased economist at Australia & New Zealand Banking Group.
“De- leveraging in the manufacturing sector will continue.” The central bank announced its first interest-rate cut in two years in November and followed with another reduction Feb 28. It also lowered banks’ reserve ratio requirements last month. Policy makers last week flagged a wider budget deficit this year, adding fiscal firepower to the monetary stimulus. A surge in exports in February suggests a strengthening US economy is helping underpin China’s outlook. — WP-Bloomberg