China February Factory Prices Roar Back, Consumer Deflation Ebbs

China
FILE PHOTO: A worker wearing a face mask works on a production line manufacturing bicycle steel rim at a factory, as the country is hit by the novel coronavirus outbreak, in Hangzhou, Zhejiang province, China March 2, 2020. China Daily via REUTERS

BEIJING ⸺ China’s factory gate prices rose at the fastest pace since November 2018 in February as manufacturers raced to fill export orders, raising expectations for robust growth in the world’s second-largest economy in 2021.

The producer price index (PPI) rose 1.7% from a year earlier, National Bureau of Statistics data showed on Wednesday, compared with the median forecast for a 1.5% rise from a Reuters poll of analysts and speeding up from a 0.3% pickup in January.

The firmer-than-expected price data is in part driven by a very low base a year earlier but also comes as the spectre of surging inflation globally rattles financial markets amid concerns the world economic recovery may overheat.

China’s exports in February grew at a record 154.9% in dollar terms from a year earlier, when the country was in virtual shutdown during the height of the COVID-19 pandemic.

Beijing last week set an economic growth target of above 6% for 2021, which is modest when compared with analyst expectation for an expansion of more than 8%. China’s gross domestic product rose 2.3% in 2020, its weakest growth in 44 years but stronger than its global peers.

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Chinese officials continue to warn of difficult external conditions, however, as the pandemic remains severe in other parts of the world and saps demand. 

The consumer price index fell 0.2% from a year earlier, the statistics bureau said in a separate statement, compared with a 0.4% fall tipped by a Reuters poll and a 0.3% decline in January.

“We do not think the recent period of consumer price deflation is likely to persist. Shifting pork price base effects will nudge up food inflation, a tightening labour market will push up core inflation and energy inflation will rebound thanks to rising oil prices,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note. 

“Given that officials have signalled a hawkish tilt in recent weeks, we think the People’s Bank of China will tighten policy this year,” he said.

Reporting by Gabriel Crossley; writing by Se Young Lee; Editing by Sam Holmes; Reuters

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