China’s consumer inflation eased more than expected in Dec, factory-gate price growth slowed for second straight month

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China’s consumer inflation eased more than expected in December mainly driven by falling food prices, while factory-gate prices grew at a much slower pace following government measures to ensure commodity supply and stabilize prices.

China’s official consumer price index (CPI) grew by 1.5% in December from a year earlier, easing from a growth of 2.3% in November, showed data released by the National Bureau of Statistics (NBS) on Wednesday. That’s below the expectations of a 1.7% fall in a Bloomberg survey.

Food prices declined by 1.2% from a year earlier, compared to a rise of 1.6% in December, showed the data.

The price of vegetables rose 10.6 year over year in December, slowing sharply from a rise of 30.6% in November. Due to an increase in fresh vegetable supply, prices fell by 8.3% in December form the previous month, compared to a month-on-month increase of 6.8% in November. Seasonal factors, though, caused the price of fresh fruit to increase by 3.4% month on month.

The price of pork declined by 36.7% in December from a year earlier, accelerating from a fall of 32.7% in November.

Non-food prices increased by 2.1% year over year in December, slowing by 0.4 percentage point from the previous month, with the growth of prices of industrial consumer goods slowing by 1 percentage point to 2.1% and service price growing 1.5%, in line with the growth in the previous month.

China’s core consumer inflation rate, excluding volatile food and energy prices, rose by 1.2% in December from a year earlier, in line with the growth in November.

“Coronavirus cases broke out in a number of cities in December, but local governments took control measures and secured supply while stabilising prices. Overall, the consumer market was stable,” said senior NBS statistician Dong Lijuan.

On a month-on-month basis, China’s CPI fell 0.3% in December from November, compared to the previous 0.4% gain and marking the first drop since the second half of 2021. Food prices fell 0.6% on month, compared to the 2.4% gain in the previous month. Fresh vegetable prices slipped 8.3%, compared to a 6.8% rise in November. Pork prices rose by only 0.4%, slowing sharply from the 12.2% gain in November.

“The main driver was a return to food price deflation as supply of pork and vegetable recovered from disruptions caused by bad weather in October and November,” according to a note from Capital Economics.

For the full year of 2021, China’s CPI grew by 0.9%, according to the NBS, down from a rise of 2.5% in 2020. Beijing set a 2021 CPI growth target of around 3%.

Meanwhile, the producer price index (PPI), which reflects the prices factories charge wholesalers for products, rose by 10.3% in December from a year earlier, slowing from a rise of 12.9% in November and decelerating for the second consecutive month. That’s below expectations of 11.3% growth in a Bloomberg poll.

“The policies to secure supply and stabilise prices continued to go into effect in December, and the prices of crude oil and other commodities went down, meaning producer prices saw a slight fall too,” added Dong.

Prices in the coal mining and washing, oil and gas exploration industries rose by 66.8% and 45.8%, respectively, in December from a year earlier, both slowing by more than 20 percentage points from the month before. Prices in fuel processing, ferrous metal smelting and non-ferrous metal smelting also grew at a slow pace last month. However, prices in gas production, power and heating supply as well as food production industries grew a faster pace in December.

On a month-on-month basis, China’s PPI fell by 1.2% in December from the previous month, marking the first drop since June 2020, showed NBS data. Prices in coal mining & washing and coal processing industries fell by 8.3% and 15.4%, respectively, faster than the previous month. Prices in steel and cement industries declined due to slower construction activities in winter. Ferrous metal smelting and non-metal mineral industries saw prices drop by 4.4% and 1.4%, respectively.

Faster inflation in China in recent months had fanned stagflation concerns amid a domestic economic slowdown and worries about persistent global inflation.

For the full year of 2021, China’s PPI grew by 8.1%, the NBS said.

“Chinese inflation dropped back last month, consistent with our view that the acceleration in price gains in earlier months would prove temporary. We think factory-gate inflation will continue to moderate going forward and that consumer price inflation will remain muted,” added Yue.

“There were outright declines in the price of most upstream industrial goods such as coal and metals thanks to the fall in global commodity prices and softer downstream demand. The output prices of electronics and consumer durables continued to fall last month, perhaps reflecting improving supply of semiconductors.”