China: Inflation Jump in January may be Temporary

February 9th, 2012
in econ_news

Econintersect:  After five consecutive months of decline China’s inflation rate jumped to 4.5% annual rate in January, according to a report today China-flag(February 9) from the National Bureau of Statistics.  In December the rate had fallen to 4.1%, very close to the government’s 4.0% objective.  For the entire year 2011 China saw a CPI (Consumer Price Index) increase of 5.4%.  However, tightening monetary policy in the second half of the year had been accompanied by a sharp decline from a three-year high of 6.5% in July, as reported by GEI News, 12 January 2012.  There are a number of factors that indicate the jump from December to January may be temporary though.

Follow up:

Some of the reasons the increase in CPI may be temporary:

  • Food costs, accounting for nearly a third of the basket, rose an annual 10.5% in January, higher than the 9.1% recorded in the previous month.  This is believed to be a one-month phenomenon due to the Chinese New Year celebration.
  • The Producer Price Index, a factory-gate measurement of inflation and a harbinger of future CPI, declined sharply in January to 0.7% percent gain from a year earlier.  December was more than double that rate at 1.7%.
  • Economic growth has been moderating, especially in the overheated real estate sector.
  • Commodity prices have been stable and contributing little to inflation.

Not all factors influencing inflation are sanguine however.  Among the factors that could keep inflation pressures in place, according to the Financial Times, are manufacturing wages which are increasing by as much as 15% due to labor shortages.


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