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China's CPI inflation up to 1.9%

(chinadaily.com.cn)
Updated: 2006-02-27 15:07

China's consumer price index (CPI) rose 1.9 percent year-on-year in January, the National Bureau of Statistics (NBS) said Wednesday. The announcement draws wide concerns during the week of Feburary 20-26.

Official data

The CPI in urban areas went up two percent while that of rural areas up 1.7 percent

The prices of water, electricity and fuel, which went up by 8.4 percent in January, increased the most. The prices of foodstuff rose by 3.6 percent in January, non-food prices went up one percent and consumer product prices went up 1.7 percent, according to NBS figures.

Foodstuff, furnishing materials, maintenance services, education, cultural goods, and recreation prices increased, while clothing, transportation and telecommunication prices went down.

Analysis & Comments

NBS: The CIP figure this January rose partly because Jan. 29 is the Spring Festival, a time of shopping sprees.

Reuters: China's annual consumer inflation quickened to 1.9 percent in January because of stronger Lunar New Year spending, but economists said price pressures remain muted and are unlikely to give policy-makers a headache.

Qu Hong Bin, economist at HSBC
The numbers (CPI) are a little bit high, but bare in mind that you have this distortion from the Chinese New Year and we would have to view these numbers with caution. This cannot be seen as indicating a re-acceleration in inflation.

Dong Tao, chief regional economist at Credit Suisse
My thought is that, as far as CPI is concerned, inflationary pressure is well contained and I do not see much of a deflationary pressure in the overall economy.

Paul Cavey, economist at Macquarie
(About CPI) Our understanding is that this was driven by food prices rising quite sharply and non-food prices coming off, where our expectation for the rest of the year is for food price inflation to weaken and non-food prices to accelerate moderately.

Paul Cavey with Macquarie Securities in Hong Kong
It was treacherous to read too much into the figures because of the Lunar New Year effect. But non-food prices bore watching.

Future price trend

Central bank: uncertainty exists over China's future price trend

China's consumer price index (CPI) is expected to grow around three percent this year, the central bank said, citing figures from the Central Economic Work Meeting that was held at the end of last year.

The probable investment rebound will lead to rising prices of raw materials, fuel and power, which will be further exacerbated by the ongoing reform of China's resource-pricing systems concerning fuel, water, power, natural gas and coal, said the bank in a report on monetary policy.

The prices of durable consumer goods as well as steel, iron, aluminium and cement products, however, will probably fall due to oversupply, dragging down the producer price index (PPI) and CPI in the country.

A survey by the central bank in the fourth quarter of 2005 shows that 41.7 percent of the urban residents predicted price rises, up 5.5 percentage points from the previous quarter, and 4.3 percent of the urban residents predicted price drops, down 1.7 percentage points from the previous quarter.

China Academy of Science: China is not expected to suffer from excessive inflation or deflation in 2006, with consumer prices likely to rise to about 1.97 percent.

Inflation is expected to pick up in the second half of the year but will still be manageable, limiting the increase in consumer prices to 1.97 percent for all of 2006.

The think-tank also forecast that China's economy would expand around eight percent a year between 2006-2010. The economy expanded 9.9 percent in 2005.