China's inflation growth continues to slow in February

China's consumer inflation continued to slow down in January to the lowest level since February 2018, while producer price inflation also dropped.

The Consumer Price Index, a main gauge of inflation, grew 1.7 percent from a year earlier, 0.2 percentage points slower than the previous month, the National Bureau of Statistics said on Friday.

Food prices rose 1.9 percent year on year in January, a pullback of 0.6 percentage points compared with December 2018, contributing 0.38 percentage points to CPI growth.

The prices of vegetables, fruits and aquatic products grew 5.9 percent, 3.8 percent and 1.2 percent year on year respectively, while lamb, beef and chicken jumped 12.7 percent, 7.9 percent and 5.8 percent. Together they contributed 0.32 percentage points to the headline CPI on a year-on-year basis.

Pork prices declined by 3.2 percent, 1.7 percentage points faster than the previous month.

Non-food prices also posted an increase of 1.7 percent year on year, the same pace as December, contributing to a 1.36-percentage-point increase in overall CPI growth.

On a month-on-month basis, the CPI increased 0.5 percent last month comparing with 0 percent in December 2018.

Vegetable, fruit and aquatic product price inflation was 9.1 percent, 2.3 percent and 2 percent month on month, respectively, which was mainly due to the cold weather and the Chinese New Year, according to Dong Yaxiu from the statistics bureau.

Risks from African Swine Fever seemed to be subsiding and more announcements of quarantines in previously infected areas were lifted, leading to higher supply and the drop in pork prices by 1 percent, which resulted in 0.03 percentage points in the CPI decline.

Among non-food products, the demand for travel increased during the winter vacation and before the Spring Festival, leading to the prices of air tickets, travel agency fees and long-distance bus tickets increasing by 15.9 percent, 6.4 percent and 2.8 percent respectively, which affected the increase of CPI by about 0.15 percentage points. 

Also, as urban migrant workers returned home before the Spring Festival, the prices of some services rose significantly, Dong said. Prices for housekeeping services, haircuts, vehicle repair and maintenance rose by 5.8 percent, 5.4 percent and 2.5 percent respectively.

Gasoline and diesel prices fell by 3.7 percent and 4 percent separately as a result of the price adjustment of refined oil.

The Producer Price Index, which measures costs of goods at the factory gate, rose 0.1 percent year on year in January, further cooling from the 0.9 percent increase in December and much lower than the annual average of 3.5 percent in 2018. 

"The continued moderation of headline PPI inflation was again led by upstream sectors," said Lu Ting, chief China economist of Nomura.

In mining and raw materials sectors, PPI inflation fell to 1.2 percent and 1.6 percent year on year, respectively, from 3.8 percent and 0.8 percent in December. And in the processing sector, it moderated to 0.3 percent from 0.8 percent. 

By industry, the slowdown in PPI inflation was led by oil and natural gas extraction, fuel processing, chemical products manufacturing, non-metallic mineral products manufacturing and non-ferrous metal processing.

"The weak CPI inflation and the continued decline in PPI inflation points to weak aggregate demand and supports our view that the growth slowdown could worsen in the first half of 2019. Falling PPI inflation could also weigh on corporate earnings," Lu said.