China’s consumer inflation accelerated for the first time since August last year, caused by a burst of household spending around the Lunar New Year holiday even as deflationary pressures persist.
The consumer price index (CPI) rose 0.5 percent last month from a year earlier, the Chinese National Bureau of Statistics said yesterday, compared with a 0.1 percent gain in the previous month.
The median forecast of economists surveyed by Bloomberg was a 0.4 percent increase.
Photo: EPA-EFE
A temporary spending boom during the eight-day break briefly masked the extent of the deflationary challenge facing the world’s second-biggest economy. The price of services increased 0.9 percent, accounting for more than 50 percent of the total rise in CPI, the statistics bureau said.
China’s factory deflation extended into a 28th month with a 2.3 percent decline, flat with the index’s contraction in December last year.
Analysts at Nomura Holdings Inc including Sonal Varma and Si Ying Toh (杜思英) estimate that China’s CPI could have been distorted by about 0.4 percentage point last month, as some prices gained when consumers ramped up purchases ahead of the festival that ran from Jan. 28 to Tuesday last week.
The Lunar New Year is a moving holiday that fell entirely in February last year.
The health of the consumer economy is increasingly in focus for China after it exchanged the first blows in a trade war with the US. An improvement in domestic demand is urgently needed to help offset the effects of higher tariffs on exports imposed this month by US President Donald Trump’s administration.
Top Chinese officials have already pivoted to plans for more government spending and interest-rate cuts. With household wealth under strain from a yearslong property slump, they elevated boosting consumption to the top priority for economic efforts this year, only the second time that has happened in at least a decade.
The persistence of deflationary pressures in China is in stark contrast to other major economies. The worry for Beijing is that an entrenched cycle of price decreases would hold back household spending for longer and damage corporate revenues so much that it stifles investment and leads to further salary cuts and layoffs.
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