China’s annual inflation surged to 4.5 percent last month, the highest level in three months, data showed yesterday, after consumers splashed out on food and gifts over the Lunar New Year holiday.
The consumer price index, a key gauge of inflation, was higher than the 4.1 percent recorded in December and ended five straight months of easing price pressures caused by government restrictions on lending and property purchases.
Analysts said the holiday was unusually early this year and had distorted the monthly data. Retail spending typically soars during the weeklong festival, the most important celebration in the Chinese calendar, as consumers ramp up spending on food, wine and gifts for family and friends.
Before last month, inflation had eased for five months in a row after hitting a more than three-year high of 6.5 percent in July, and analysts said the downward trend would likely resume this month as the economy continued to slow.
“It was inevitable that we would see some impact of the Lunar New Year holidays, which were in January this year but February last year, but it seems that this impact was bigger than expected,” said Brian Jackson, a senior analyst at Royal Bank of Canada in Hong Kong.
Analysts had expected inflation to rise 4.1 percent, according to a Dow Jones Newswires survey.
The rebound in inflation was driven by food prices, which soared 10.5 percent year-on-year last month compared with 9.1 percent in December, China’s National Bureau of Statistics said in a statement.
The producer price index, which measures the cost of goods at the farm and factory gate, rose an anemic 0.7 percent last month compared with 1.7 percent in December, the statement said, indicating consumer price pressures would ease in the coming months.
Bank of America-Merrill Lynch economist Lu Ting (陸挺) said the data was “significantly distorted” by the holiday “so investors definitely should not read too much into the inflation” figure.
UBS economist Wang Tao (王濤) agreed, saying: “The downward trend of CPI inflation has not been altered.”
In related news, South Korea’s central bank yesterday froze its key interest rate for the eighth straight month, amid competing pressures from a cooling economy and consumer fears of rising prices.
The Bank of Korea held the benchmark seven-day repo rate at 3.25 percent for this month, as widely expected.
Analysts said strong inflationary pressure, coupled with low growth prospects for the domestic economy, left little room for change.
Inflation slowed to 3.4 percent last month year-on-year compared with 4.2 percent in December.
However, in a report released on Monday, the central bank said the outlook for inflation was unstable due to risks from US-Iran tensions and consumer worries over rising costs — based on monthly surveys conducted by the central bank.
Moody’s Analytics said risks to growth and inflation “are evenly balanced,” as industrial production growth eased to 2.8 percent year-on-year in December and was likely to stay weak through the first half of this year.
“The case for a rate cut is growing and it will now only be a matter of time before the Bank of Korea loosens policy,” Moody’s said in a commentary, predicting two small rate cuts in the second quarter.