China’s consumer price index returned to positive territory in December, raising hopes that the country’s economic recovery will further boost demand at a time when core inflation remains weak.
The country’s consumer price index exceeded expectations and rose 0.2 percent from a year earlier in December, after falling 0.5 percent in the previous month, with gains driven largely by consumer prices. foods.
Price growth in China has been anemic in recent months, despite the country’s rapid recovery from the coronavirus, which has been fueled by industrial production as new cases remain low.
China’s gross domestic product is expected to have grown 2.1% last year, compared to contractions forecast in other economies.
Core inflation, which excludes food and energy prices, fell to 0.4 percent year-on-year in December – lower than at any time since the onset of the coronavirus outbreak and its weakest level since the beginning of 2010 .
The persistently low levels of inflation have created an enigma for policymakers, as other areas of the economy continue to heat up. The People’s Bank of China cut benchmark interest rates last year, but the government has since acted to restrict the real estate sector.
“With economic activity set to remain strong and underlying inflation likely to recover, we believe the PBOC will toughen policy this year,” said Julian Pritchard-Evans, senior economist at Capital Economics for China.
He added, however, that consumer prices may return to deflation in the coming months, due to sharp increases in pork prices last year.
The outbreak of African swine fever in the summer of 2018 led to the slaughter of millions of pigs, which raised the price of pork – one of the most important components of China’s consumer price index. In July, pork prices increased 86% over the previous year.
Factory prices in China, which were in negative territory for most of last year, fell 0.4 percent year-on-year in December, exceeding economists’ expectations. In monthly terms, the producer price index rose 1.1 percent, the fastest rate in more than four years.
Iris Pang, chief economist for Greater China at ING, suggested that the increase was partly caused by an outbreak of coronavirus in Hebei province, which interrupted supplies. China reported on Monday that the new cases exceeded 100 for the first time since July, with almost all new domestic cases in Hebei.
But Ms. Pang added that both the CPI and the PPI are expected to increase in 2021.
“After the Chinese New Year, we should see demand increasing,” she said.