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China Inflation Rises Slightly In December; PPI Down

Chinese flag 040910 1 11Jan16

China's consumer price inflation increased marginally in December on rise in food prices but it still remained well below the government's target. At the same time, producer prices continued its deep downward trend, giving space for monetary policy adjustment.

Inflation edged up to 1.6 percent as expected from 1.5 percent in November, the National Bureau of Statistics revealed over the weekend. A similar rate was last seen in September 2015, and was the fastest rate since August 2015.

Overall inflation has remained well below the government's full year target of around 3 percent.

Food inflation rose to 2.7 percent from 2.3 percent and non-food inflation held steady at 1.1 percent.

On a monthly basis, consumer prices gained 0.5 percent in December after staying flat a month ago.

Consumer price inflation remains high enough to keep concerns about deflation at bay but low enough to give policymakers plenty of room to loosen further, Mark Williams at Capital Economics, said.

Williams said there is good chance that inflation will rise over the months ahead. Even if global oil prices fall further, the government's decision in mid-December to freeze domestic prices puts a floor under how low fuel inflation can go.

Another report from the NBS showed that producer prices decreased for the 46th consecutive month in December.

The producer price index dropped 5.9 percent year-on-year in December, the same rate of decrease as seen in previous four months. Economists had forecast a 5.8 percent fall for December.

A year after the steepest commodity price declines, producer price inflation should be on the cusp of a rebound, Williams at Capital Economics noted.

The depreciation of the yuan, selloff in the stock market and the economic slowdown make markets to expect the central bank to step up actions.

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