China: Inflation remains elevated – UOB

UOB Group’s Economist Ho Woei Chen, CFA reviewed the latest release of inflation data in the Chinese economy.

Key Quotes

“In line with consensus expectation, China’s February Consumer Price Index (CPI) inflation moderated to 5.2% y/y from its 8-year high of 5.4% y/y in January. This represented 0.8% m/m increase compared to +1.4% in January.”

“Food, in particular pork, was the main inflation driver in the month which was not unexpected given the festive demand during Lunar New Year period. Food price inflation picked up to 21.9% y/y in February from 20.6% y/y in January. Pork prices surged 135.2% y/y in February (Jan: 116.0% y/y), a fresh record monthly gain since data was available in 2005, compounded by festive demand while China’s hog supplies continued to be affected by the African swine fever outbreak.”

“Meanwhile, core inflation (excluding food and energy) eased sharply to 1.0% y/y from 1.5% y/y in January, the slowest pace since May 2010 and pointing to an otherwise weaker consumer demand outlook in China.”

“Looking at the confluence of factors from both supply and demand including expectation for the high pork prices to be sustained, weaker GDP growth and lower crude oil prices, the headline inflation is likely to be contained but may continue to stay elevated at around 5.0% in the next few months before starting to track lower in the later part of the year.”