China Inflation


Inflation falls to 20-month low in February

In February, consumer prices rose 3.2% over the same month last year, which was well below the 4.5% registered in January and represented, in fact, the lowest reading since June 2010. In addition, the print undershot market expectations that had inflation declining to only 3.4%. The combined January-February inflation rate, which smoothes the seasonal disruption related to the Chinese New Year holiday, was 3.9%, down from the 4.1% seen in December 2011. The main driver behind the February deceleration was lower prices for food, while non-food prices remained broadly unchanged. Meanwhile, core inflation, which strips out volatile food costs, continued to moderate, falling from 1.8% in January to 1.7% in February, which represents the lowest point recorded since October 2010. Annual producer price inflation continued to slow as well and fell for the seventh month in a row, dropping from 0.7% in January to a flat reading in February. The print was slightly below the 0.1% expected by the market and marked the lowest level seen since November 2009. As a result, annual average producer price inflation slowed from January's 5.6% to 5.0%. Meanwhile, amidst easing inflationary pressures, on 20 March the National Development and Reform Commission (NCRC) raised gasoline and fuel prices by 6.4% and 7.0% respectively, which represents the second increase this year. The government expects that inflation will average 4.0% this year.

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