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China Inflation February 2024

China: Consumer price inflation hits highest level since March 2023 in February

Consumer inflation clocked 0.7% in February, contrasting January’s 0.8% year-on-year drop in prices. February’s figure marked the highest inflation rate since March 2023, but was boosted artificially by the timing of the Lunar New Year (LNY); the LNY fell in February this year compared to January in 2023, and the LNY is associated with greater demand for goods and services.

The annual average variation of consumer prices was flat in February, matching January’s reading. Lastly, consumer prices rose 1.00% over the previous month in February, picking up from January’s 0.30% rise. February’s uptick marked the highest reading since January 2021.

Meanwhile, producer prices fell 2.7% on an annual basis in February, which was a sharper drop compared to January’s 2.5% decrease.

Our Consensus is for inflation in China to be one of the lowest rates in Asia in 2024 as a whole, on the back of lackluster domestic demand. That said, price pressures should rise somewhat over the course of the year.

Nomura analysts don’t expect the recent uptick in price pressures to last:

“High-frequency data show food prices have been declining rapidly since the conclusion of the Chinese New Year holiday, largely as expected, and we expect CPI inflation to ease to 0.4% y-o-y in March. Moreover, the larger-than-expected PPI deflation suggests factory activity remained highly subdued in February.”

On the outlook, United Overseas Bank’s Ho Woei Chen said:

“As the decline in food prices have contributed significantly to China’s deflation in the past months, having a significant weight of 29% in the CPI basket (including tobacco), we think that a rebound in food prices this year will help to stabilise the inflation outlook in China. Having said that, any recovery in prices will unlikely be strong because domestic demand is expected to be subdued while asset prices is still facing downward pressures. We maintain our forecast for headline inflation at 1.0% this year.”

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