Chinese Inflation Slowed: Factors Bringing the Rate Down



China’s inflation rate as measured by the Consumer Price Index for 2013 was 2.6 percent, below the government’s 3.5 percent target, suggesting domestic demand may be falling short of expectations. The data were released by China’s National Bureau of Statistics, which also reported that December’s inflation rate edged down to 2.5 percent from 3 percent in November.

In both rural areas and cities, the CPI was 2.5 percent in December. Year-on-year food prices increased by 4.1 percent, up 0.6 percent from November. Housing grew by 2.8 percent, with rental prices up 4.7 percent. The cost for education services was 2.8 percent higher from where it stood a year ago. Measures of transportation and communication, as well as tobacco and liquor, declined on yearly basis.

Louis Kuijs, an economist with RBS, explained to the Financial Times that what was witnessed in regards to food prices — a more modest increase compared to previous years — was an anomaly. “If we run the numbers, the behavior of food prices in December was very different from what we usually see,” Kuijs said to the publication. “The austerity campaign is constraining demand and this must be having an impact. And many businesses have not yet fully adjusted, so there could be additional downward pressure as they catch up to the new reality.”

Yu Qiumei, an NBS senior statistician, told Xinhuanet, the official state paper of the Chinese government, that the decline in yearly CPI is due mainly to it being so high in December 2012. China economists for Bank of America Merrill Lynch Lu Ting and Zhi Xiaojia said the 2.5 percent is lower than the forecasted 2.7 percent.

The Producer Price Index declined 1.4 percent from December 2012. For 2013 as a whole, PPI decreased 1.9 percent, and manufactured goods fell by 2 percent. Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd., said to Bloomberg that “Producer-price deflation means manufacturing is still facing lots of challenges.”

CNBC reports that Chris Weston, market strategist at IG, wrote in a note that the “major issue” facing Chinese authorities and the People’s Bank of China “is how they support inflation without boosting credit supply.”

Following the news, most Asian markets ended the day lower. The Nikkei 225 closed down 1.5 percent, the Shanghai Composite was down by 0.82 percent, and the Hang Seng fell 0.91 percent.