Inflation uptick to complicate economic outlook

16  January 2013

BEIJING — Surging food prices following lingering cold weather pushed up China’s consumer inflation in December, and the trend may complicate the economic outlook later in the year, analysts have predicted.

According to data released on Friday by China’s National Bureau of Statistics, the consumer price index, a main gauge of inflation, last month posted its biggest increase since June, rising 2.5 percent from one year earlier and up from November’s 2-percent growth.

The major contributor to the pick-up was the cost of vegetables, which the NBS said accounted for 57.5 percent of the month-on-month consumer price increase.

Large parts of China have experienced their coldest winter in nearly three decades, raising the production, transportation and distribution costs of agricultural produce.

The pick-up in consumer inflation is not yet alarming, but if it continues to accelerate, the trend will limit room to further stimulate growth and complicate the economic outlook and monetary policy making, analysts have said.

The pressure on vegetable prices from the bad weather should dampen after the Chinese New Year, which falls on February 10 this year, but the pressure on meat prices is likely to last longer, RBS chief China economist Louis Kuijs said in an emailed analysis note.

Kuijs expects the annual CPI increase to quicken to about 3.5 percent in February before moderating again to around 3 percent until mid 2013.

However, some analysts warned that a broad recovery in economic activity might push prices higher. Data due for release on January 18 is likely to confirm a mild rebound in the world’s second-largest economy, which has slowed for seven consecutive quarters.

China on Thursday posted a strong rebound in exports and imports in 2012, signaling a growth revival. The increase, though lower than the government’s annual growth target, came despite global economic gloom last year.

Among other evidence supporting a revival, the official purchasing managers’ index, a gauge of manufacturing activity, expanded in December for a third straight month.

Liu Ligang, an economist at ANZ National Bank Ltd., said a pick-up in the country’s growth momentum will possibly fuel inflation, which could become more evident in the second half of the year.

The producer price index, a major measure of factory-gate inflation, fell 1.9 percent in December from a year earlier, the smallest fall after May’s 1.4-percent decline. But some analysts said with the prices of commodities, especially those of iron ore, keeping rising, the PPI could soon start to increase.