China annual consumer inflation rate accelerates in December

China’s annual consumer inflation rate accelerated in December, driven by rising food prices even as domestic demand wavered amid restrained economic activity.

Economists expect inflation to continue to pick up in the first quarter of 2023.

The consumer price index (CPI) in December was 1.8 per cent higher than a year earlier, rising faster than the 1.6 per cent annual gain seen in November, data from the National Bureau of Statistics (NBS) showed on Thursday. The result matched a Reuters poll estimate of 1.8 per cent.

The annual rate fall in the producer price index (PPI) slowed in December to 0.7 per cent from the 1.3 per cent seen in the previous month.

Economists in a Reuters poll had expected a 0.1 per cent decline, reflecting disruption of industry by a high number of COVID-19 cases towards the end of 2022.

China abandoned its strict zero-COVID measures last month, lifting lockdowns, removing quarantine and halting regular testing. As a result, economists expect inflation to continue to accelerate in the first quarter.

“There are some early signs that the transition toward living with COVID is starting to put upward pressure on prices,” said Zichun Huang, economist at Capital Economics.  “But the uptick in inflation is unlikely to be as large as that seen in many other economies as they reopened.”

Analysts do not expect rising inflation to prompt a rise in interest rates.

“As inflation will remain manageable over the foreseeable future, we think the People’s Bank of China will need to lower the MLF (policy) rate by 10 bps in Q1,” said Zhou Hao, chief economist at Guotai Junan Group.

Food prices were 4.8 per cent higher in December than a year earlier, after an annual rise of 3.7 per cent seen in November.

Core inflation, which excludes food and energy prices, is still subdued, although it did edge up from an annual rate of 0.6 per cent in November to 0.7 per cent last month. That reflected the early effects of reopening being felt in the healthcare and travel sectors, where inflation ticked up.

The average CPI for all of 2022 was 2.0 per cent higher than in 2021, compared with the government target of a rise of around 3 per cent.

Bruce Pang, chief economist at Jones Lang Lasalle, expects the year-average CPI for 2023 to up 2.5 per cent on 2022.

China’s commerce ministry said last week that it would study and implement policies to boost consumption and that consumer demand would gradually return following the continuous optimisation of epidemic control and prevention.

At a regular press briefing in Beijing on Thursday, China’s state planner said that, although international commodity prices might fluctuate and imported inflationary pressures remained, China had full confidence that it could keep prices stable this year.