All is well on the inflation front

CPI growth allays China's short-term liquidity concerns, experts say

China's consumer price index grew 2.5 percent year on year in December, and 2.6 percent for the whole of 2013, well below the government's full-year target of 3.5 percent, the National Bureau of Statistics said on Jan 9.

December's CPI, a main gauge of inflation, was 0.5 percentage points lower than the previous month.

Inflation in December was 2.5 percent in cities and rural areas. Food prices, which account for roughly a third of CPI, rose 4.1 percent in December from a year ago, while non-food products edged up 1.7 percent.

The producer price index, which measures inflation at the wholesale level, fell 1.4 percent year on year in December. Annualized PPI for 2013 fell 1.9 percent year on year, the NBS data showed.

Yu Qiumei, a senior statistician with the NBS, said the notable year-on-year decline of the CPI in December is partly attributable to the high comparison base in December 2012.

Lu Ting and Zhi Xiaojia, China economists with Bank of America Merrill Lynch, said in a research report that in December, the CPI inflation fell more than expected to 2.5 percent year on year from 3 percent in November, much lower than the market expectation of 2.7 percent.

The lower-than-predicted CPI was due to lower food inflation, as this fell to 4.1 percent from 5.9 percent in November, Lu and Zhi said.

The CPI figure bodes well for managing liquidity conditions in China, which were extremely volatile last year, they said.

"Subdued inflation would be supportive of a neutral monetary (policy) rather than tightening."

They emphasized that over the past two months markets have shown concern over whether the central bank, the People's Bank of China, would tighten credit supply if CPI growth approached the government's 3.5 percent target.

"We believe that a well-below 3 percent CPI inflation could be good news for the markets as monetary tightening is not justified," they said in their report.

China's economy probably grew 7.6 percent in 2013, according to a government report cited by state media last month, slightly above the country's official target and just below the figure of 7.7 percent in 2012, the worst performance in 13 years.

On Jan 3, NBS and China Federation of Logistics and Purchasing jointly released the December manufacturing Purchasing Managers' Index, showing China's manufacturing growth slowed in December for the first time in six months.

PMI retreated to 51 from 51.4 in November, the lowest level since August, suggesting the economy faced headwinds at the end of last year.

Another sub-index showing entrepreneurs' production expectations for the coming months dropping to 49.4 from 54.9 over a month suggests that, to some extent, economists are worried about the future macroeconomic environment.

In addition, the sub-index of production output fell to 53.9 in December, down from 54.5 in November, the first drop in the second half of 2013. The iron, steel, nonferrous metals and non-metallic mineral products industries showed sharper production slowdowns.

For the indexes, any reading above 50 means an improving situation from a month earlier, but a figure below 50 means deterioration.

Zhao Qinghe, an economist from the statistics bureau, says that the weaker momentum indicated by December's PMI is mainly due to seasonal factors.

"However, the PMI figure still shows expansion in December. Furthermore, it has remained above 50 for 15 consecutive months, which means the general industrial situation is stable," says Zhao.

Chen Zhongtao, an analyst with the China Federation of Logistics and Purchasing, says that the growth rate of manufacturing industries may continue to slow due to structural rebalancing and the steps to control overcapacity.

"The key task this year is to expand domestic demand in order to stabilize the overall economic growth, as well as to be careful about a possible sharp contraction of exports because the international environment is complicated," Chen says.

Zhang Rui, the owner of Chuangsi Optical Spectacles Co Ltd in Wenzhou, Zhejiang province, says: "There was a slight growth in overseas orders for the Christmas and the New Year period. The off-peak season for exports started in November with substantial demand."

Zhang says that though he expected his company to clock a 20 percent growth in profits for 2013, it will end up with only 10 percent growth, as overall exports remained sluggish for most of the year.

Contact the writers at chenjia@chinadaily.com.cn

Xinhua and AFP contributed to this story.

(China Daily Africa Weekly 01/10/2014 page19)