China CPI inflation softens in Feb, PPI worsens on weak manufacturing

By Ambar Warrick

Investing.com -- Chinese consumer inflation missed expectations in February as spending still remained constrained despite the lifting of anti-COVID measures, while factory gate prices shrank more than expected as disruptions in the manufacturing sector persisted.

Consumer Price Index inflation (CPI) rose 1% in the 12 months to February, data from the National Bureau of Statistics showed on Thursday. The reading was lower than expectations for a rise of 1.9%, and much softer than last month’s reading of 2.1%.

CPI inflation fell 0.5% from the prior month, missing estimates for a rise of 0.2% and weaker than January’s reading of 0.8%.

Producer Price Index (PPI) inflation continued to worsen, falling 1.4% in the 12 months to February. The data was weaker than expectations for a drop of 1.3%, and last month’s reading of negative 0.8%.

The readings indicate that despite a recovery in business activity, an economic rebound in China is still in a nascent stage, as the country struggles to recover from three years of strict COVID restrictions.

While China’s manufacturing sector returned to expansion territory in February, the weak PPI reading indicates that the sector, usually a bellwether for the Chinese economy, is still running well below full capacity.

Weak price pressures also give the People’s Bank little economic headroom to tighten monetary policy and support the yuan, which is once again trading dangerously close to the key 7 level against the dollar.

The Chinese currency fell 0.1% on Thursday to 6.9609.

Analysts have raised the possibility of more interest rate cuts by the PBOC, as it struggles to shore up sluggish economic growth in the country. But China’s key lending rates are already at historic lows.

Thursday’s inflation data also comes on the heels of middling trade data, which showed that demand for imports in China remains languid. The Chinese government also recently set a softer-than-expected GDP growth target for 2023.

Still, the soft economic readings increase the prospect of more stimulus spending by the Chinese government, which has vowed to leverage high consumer spending to spur an economic recovery this year.