CPI rises 2.5% on year but stays within annual target

China’s consumer price index, a main gauge of inflation, rose 2.5 percent year on year, staying within the government’s annual target of around 3.5 percent, data from the National Bureau of Statistics showed on Monday.

The annual figure was down from 2.9 percent in 2019 but up from 2.1 percent in 2018.

In December, the CPI rose 0.2 percent year on year, up from a 0.5 percent decrease in November.

Growing consumer demand, rising costs and special weather conditions were the main factors that pushed the CPI back into positive territory, said Dong Lijuan, a senior statistician with the NBS.

Food prices increased 1.2 percent year on year last month, reversing a 2 percent fall in November and contributing approximately 0.26 percentage points to the CPI gain, Dong said.

Prices of both fruits and vegetables climbed 6.5 percent year on year in December, while beef and mutton costs rose 4.6 percent from a year earlier.

The CPI edged up 0.7 percent on a monthly basis, compared with a 0.6 percent drop registered in November.

“Due to continued low temperatures, the production, storage and transportation costs of fresh vegetables and fruits have increased,” Dong said.

Rising demand ahead of the Lunar New Year festival coupled with higher feed costs pushed pork prices up 6.5 percent month on month, up from a 6.5 percent decrease in November, he added.

On Friday, China’s first live hog futures began trading, which officials hope will help halt price fluctuations.

Non-food prices remained flat in December, up from a 0.1 percent decrease in November.

The CPI in urban and rural areas posted year-on-year growth of 0.2 percent last month.

The core CPI, which excludes food and energy prices, increased 0.4 percent year on year in December, down from a 0.5 percent increase in November.

Zhang Yu, chief analyst with Hua Chuang Securities, said the core CPI remained sluggish last year partly due to black swan events such as the COVID-19 epidemic.

The country’s core CPI is expected to “rise to around 1 percent this year,” Zhang said, citing the recovery of domestic demand as the most prominent factor in driving up the CPI.

China’s CPI will likely remain at its current level for the first two months of 2021, as a resurgence of COVID-19 and the re-introduction of strict social distancing rules could suppress demand during the Chinese Lunar New Year holiday, and increased travel restrictions could reduce supply, according to a research note from Nomura Securities.

The government will carry out a moderate normalization in 2021 following stimulus measures in 2020, but for now, policy-makers appear to be in wait-and-see mode due to the resurgence of the coronavirus, the note read.

Monday's data also shows that China’s producer price index, which measures costs for goods at the factory gate, fell 0.4 percent year on year in December, narrowing from the 1.5 percent drop in November.

“Domestic demand recovered steadily, coupled with the continued rise in prices of some international commodities,” said Dong.

For the whole of 2020, PPI fell 1.8 percent on year.