China Inflation

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China: Inflation accelerates in January

February 15, 2011

In January, consumer prices rose 4.9% over the same month the year before, up from the 4.6% tallied in December. The acceleration was, nevertheless, softer than expected, as analysts had seen inflation rising to 5.3%. Moreover, annual average inflation increased further to 3.6% in January, approaching the 4.0% target set by the government for 2011. As in the previous months, the main drivers behind the increase were higher food prices, which rose 10.3% over January 2010 (December: +9.6% year-on-year). Non-food prices mitigated the inflation reading, rising a sub-par 2.6% (December: +2.1% yoy). Housing costs also maintained the upward trend, rising 6.8% (December: +6.0% yoy). Moreover, the National Bureau of Statistics (NBS) announced on 15 February a methodological change in the consumer price index (CPI). Starting with the January data set, the housing component was given a larger weight in the consumer price index, while food price weights were reduced. These changes are conducted every five years, and NBS officials said the adjustment added 0.024 percentage points to January's figure. Meanwhile, producer price inflation resumed the upward trend in place since September last year. In January, the producer price index (PPI) added 6.6% over the same month last year, well above both December's 5.9% rise and the 6.1% increase expected by market analysts. Accelerating producer prices point to higher consumer price inflation in the months ahead, as businesses typically pass on cost increases to consumers in an environment of resilient domestic demand.

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