Prices have been pretty low in China, mostly negative while the CPI consumer inflation has been surging in Europe and the US. However, in February we saw a jump in the CPI inflation to 0.7% YoY due to the Chinese New Year, however, it was expected to slow down in March to 0.4%.

In February, China’s consumer prices experienced a notable shift. The CPI (Consumer Price Index) rose by 0.7% year on year, marking the first increase in consumer inflation since last August, but expectations for March were for a 0.4% reading. This increase was a turnaround from the sharpest drop in over 14 years observed in January (-0.8%). The PPI (Producer Price Index) came at -2.7% while March PPI was expected to be lower at -2.8% YoY. Here are some key points of the February inflation:

February 2024 CPI Inflation

1. Food Prices: Food prices declined the least in eight months, with a decrease of 0.9% (compared to a staggering -5.9% in January). This reflects upturns in costs of pork and fresh vegetables.
2. Non-Food Inflation: Non-food inflation sharply accelerated to 1.1% (up from the prior 0.4%). Prices rose further for clothing, housing, health, and education. However, transport prices moderated (-0.4% vs. -2.4%).
3. Core CPI: The core CPI, which deducts food and energy prices, increased by 1.2% year on year in February, the highest level since January 2022.
4. Monthly Trend: Consumer prices increased by 1.0% month on month, marking the third straight month of rise and reaching the highest level since January 2021.

Analysts view the return to inflation in the CPI as temporary, attributing it to volatility in food and travel prices during the Lunar New Year break. However, there are broader factors at play. Swiss Re’s recent paper titled “China’s inflation issue” sheds light on the situation:

• Domestic Demand: A greater unemployment rate, slower income growth, and a real estate market slump have led to very poor domestic demand.
• Deflationary Pressures: Expectations are that deflationary pressures will diminish in 2024.
• Positive Inflation Drivers:
  • Stable Core CPI Growth: Core CPI is expected to remain stable.
  • Increasing Food Prices: Food prices are likely to contribute to inflation.
  • Policy Leeway for the PBoC: As the Fed stops its tightening cycle, the People’s Bank of China (PBoC) has more room for policy adjustments.

As a result, the full-year CPI inflation for 2024 was projected to be 0.5%, an increase from 2023. However, today’s figures came below expectations, which shows that prices are quite stable in China.

March 2024 CPI and PPI Inflation

For CPI:

• Month-on-month, there was a decrease of 1%, which was below the expected decrease of 0.5%.
• Year-on-year, there was a modest increase of 0.1%, falling short of the expected 0.4% and lower than the previous rate of 0.7%.

For PPI:

• Month-on-month, there was a slight decrease of 0.1%, consistent with the previous month’s decline of 0.2%.
• Year-on-year, there was a decrease of 2.8%, in line with expectations and slightly higher than the previous rate of -2.7%.