Update: China's consumer prices climb in January as food costs rise

[BEIJING] China's consumer price inflation picked up in January, led by food costs ahead of the week-long Lunar New Year holiday.

The consumer-price index rose 1.8 per cent in January from a year earlier, the National Bureau of Statistics said Thursday, compared with 1.6 per cent a month earlier.

The producer-price index fell 5.3 per cent, compared to a 5.9 per cent decrease in December, extending declines to a record 47 months.

A sustained acceleration in consumer price gains may offer policy makers some relief as they battle to underpin growth while tackling overcapacity. While the world's second-largest economy has shown some signs of economic stabilization, the lingering lack of pricing power - especially among the nation's factories - still signals tepid demand.

"The deflation pressures are much, much bigger than the inflation pressures," said Larry Hu, head of China economics at Macquarie Securities Ltd in Hong Kong.

"The data shows that the economy is pretty weak." NBS said food prices rose 4.1 per cent from a year earlier, picking up from 2.7 per cent in December for the quickest pace of gains since May 2014. A food price tracker by Bloomberg Intelligence rose 3 per cent in January from a year earlier, compared with a 2.2 per cent gain in December.

"The uptick in consumer prices is certainly striking," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a report.

"But with virtually the entirety of the increase coming from food prices, it's not an increase that's likely to be sustained for long. Food prices are subject to supply shocks and seasonal blips."

Factory Deflation

Reflecting relative strength in services industries, price increases there continued to outstrip those for consumer goods.

Industries beset by overcapacity remained the biggest drag on producer prices, with mining goods 19.8 per cent cheaper than a year earlier, the data showed. Food and clothing prices at the factory gate climbed slightly, while purchasing prices for fuels, ferrous and non- ferrous metals all fell more than 10 per cent from a year earlier.

"It's really a problem of lack of domestic growth and domestic demand," John Zhu, an economist at HSBC Holdings Plc in Hong Kong, said in a Bloomberg Television interview.

"The longer you get negative PPI, the more the risk that inflation expectations get dragged lower."

Factory-gate deflation will probably moderate to about 5 per cent in the first quarter, according to Niu Li, an economist at the State Information Center, a research arm of the National Development and Reform Commission, the nation's chief planning agency.

"The producer-price index is still much lower than what we thought, indicating severe difficulties in the industrial sector," Mr Niu said in an interview.

"The PBOC is unlikely to impose any major change in its monetary policies because of the reading."

BLOOMBERG