China factory prices roar back in February, consumer deflation ebbs

BEIJING (REUTERS) – China’s factory gate prices rose at the fastest pace since November 2018 in February as manufacturers raced to fill export orders, raising expectations for robust growth in the world’s second-largest economy in 2021.

The producer price index (PPI) rose 1.7 per cent from a year earlier, National Bureau of Statistics data showed on Wednesday (March 10), compared with the median forecast for a 1.5 per cent rise from a Reuters poll of analysts and speeding up from a 0.3 per cent pickup in January.

The firmer-than-expected price data is in part driven by a very low base a year earlier but also comes as the spectre of surging inflation globally rattles financial markets amid concerns the world economic recovery may overheat.

China’s exports in February grew at a record 154.9 per cent in dollar terms from a year earlier, when the country was in virtual shutdown during the height of the Covid-19 pandemic.

Beijing last week set an economic growth target of above 6 per cent for 2021, which is modest when compared with analyst expectation for an expansion of more than 8 per cent. China’s gross domestic product rose 2.3 per cent in 2020, its weakest growth in 44 years but stronger than its global peers.

Chinese officials continue to warn of difficult external conditions, however, as the pandemic remains severe in other parts of the world and saps demand.

The consumer price index fell 0.2 per cent from a year earlier, the statistics bureau said in a separate statement, compared with a 0.4 per cent fall tipped by a Reuters poll and a 0.3 per cent decline in January.

“We do not think the recent period of consumer price deflation is likely to persist. Shifting pork price base effects will nudge up food inflation, a tightening labour market will push up core inflation and energy inflation will rebound thanks to rising oil prices,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note.

“Given that officials have signalled a hawkish tilt in recent weeks, we think the People’s Bank of China will tighten policy this year,” he said.

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