Bloomberg News

China’s Inflation Accelerates as Chill Boosts Food Prices

January 11, 2013

China Dec. Consumer Prices Rise 2.5% Vs 2.3% Analyst Est.

Chinese shoppers buy vegetables at a supermarket in Hefei, Anhui province, China. Central bank adviser Chen Yulu said this week that inflation may become a concern in the second half of the year. Source:AFP/Getty Images

China’s inflation accelerated more than forecast to a seven-month high as the nation’s coldest winter in 28 years pushed up vegetable prices, a pickup that may limit room for easing to support an economic recovery.

The consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg News survey of 42 economists and a 2 percent gain in November. The decline in the producer-price index eased to 1.9 percent.

Chinese stocks headed for the biggest drop in eight weeks on concern that the quickening in inflation makes further policy loosening less likely, after data yesterday on exports and credit growth underscored the strength of the economic rebound. Chen Yulu, a central bank academic adviser, said Jan. 8 that price gains may become a concern in the second half.

“With growth momentum firming up and inflation picking up, the likelihood of any further easing has disappeared and the next interest-rate move will probably be an increase,” which could come as early as the fourth quarter, Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong, said in a telephone interview.

The Shanghai Composite Index, China’s benchmark stock gauge, fell 1.3 percent at 2:02 p.m. local time. The yuan strengthened beyond 6.22 against the dollar for the first time in 19 years.

Holiday Impact

Inflation may temporarily accelerate to more than 3 percent next month, Zhu said, reflecting the impact of cold weather on food prices and the weeklong Chinese Lunar New Year holiday, which fell in January last year.

Even so, for now, policy makers are more focused now on “how to balance growth with the need for economic restructuring,” Zhu said.

Food prices rose 4.2 percent in December from a year earlier, the most since May, the data showed. Vegetable prices increased 14.8 percent from a year earlier and contributed 57.5 percent to the total 0.8 percent month-on-month gain in the CPI, the bureau said. Pressure on food costs may ease after the holiday, it said in a statement.

Inflation pressure may be spreading to other parts of the economy. Prices of services rose 2.5 percent in December from a year earlier, the fastest rate since October 2011. Factory-gate prices of daily-use items increased the most since June.

Consumer inflation has held below Premier Wen Jiabao’s 2012 target of about 4 percent for 11 months, aiding the government’s efforts to engineer a growth recovery without triggering price gains. Producer prices dropped for the 10th month. For the full year, the CPI rose 2.6 percent while factory-gate prices declined 1.7 percent.

‘Abnormal Weather’

China’s vegetable prices may surge in some regions in the short term because of “abnormal weather,” the Ministry of Agriculture said last month.

The price of cabbage, a winter staple for Chinese households, jumped 9.3 percent in the last week of December from a week earlier, according to Ministry of Commerce data from 36 Chinese cities.

Snow had left about 180,000 head of livestock dead in northern China by Jan. 4, while icy weather in the subtropical Guangxi region damaged 8,310 hectares of crops, according to the official Xinhua News Agency.

McDonald’s Corp., the world’s largest restaurant chain, raised some menu prices in China because of higher labor and input costs, the company said Jan. 7.

The People’s Bank of China has refrained from adjusting interest rates since cuts in June and July and it last reduced banks’ reserve requirements in May, preferring to control the amount of cash in the economy through bill sales and purchases.

Liquidity Control

“The PBOC will continue to keep the liquidity under control,” maintaining a lid on “the most important driver for Chinese inflation,” Chang Jian, a Hong Kong-based economist at Barclays Plc, said in an interview with Bloomberg Television.

Data yesterday showed signs of an improving economy, with exports up 14.1 percent in December from a year earlier, the most since May, according to customs administration data. Imports grew 6 percent after being unchanged in the previous month. Aggregate financing rose 28 percent from a year earlier a year earlier, according to the central bank.

The government will release fourth-quarter gross domestic product, December industrial production and retail sales and full-year fixed-asset investment on Jan. 18. Economic growth probably accelerated to 7.8 percent in the quarter from a year earlier, up from a three-year low in the previous period, according to a Bloomberg News survey.

--Zhou Xin. With assistance from Nerys Avery in Beijing and Cynthia Li and Rishaad Salamat in Hong Kong. Editors: Scott Lanman, Sunil Jagtiani

To contact Bloomberg News staff on this story: Xin Zhou in Beijing at xzhou68@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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