Econintersect: The increase in China’s manufacturing and export activity is not 
the reason that Chinese inflation (Consumer Price Index) increased to 2.5% year-over-year in December. The culprit was food, which rose 4.2% from a year ago. The increase surprised economists who had been predicting CPI to increase by 2.3% (according to Bloomberg), up from 2.0% gain in November. The 2.5% gain was the highest year-to-year advance in seven months. The last time this level was reached was in May when the annual CPI inflation was 3.0%.
The PPI (Producer Price Index continued a contract of xx months, with a reading 1.9% lower than a year ago. This was the smallest decline since -3.6% in September when an accelerating rate of deflation ended and a decelerating phase started. In November PPI declined 2.2% year-over-year.
The increase in inflation and the stronger trade and manufacturing numbers reported recently make it unlikely that there will be any further easing of economic policy by the Chinese government. According to quotes reported by Bloomberg, some observers think inflation could increase to 3% in the next month or two and “price gains may become a concern in the second half of the year.”
Sources:
- Statistical data (National Bureau of Statistics China)
- China’s Inflation Accelerates as Chill Boosts Food Prices (Bloomberg News via Alphaville)
- China: Strong Trade Growth for December and 2012 (GEI News, 10 January2013)
- China PMI Looking Up and Other Recent News (GEI News, 03 January 2013)
- China: Leading Economic Indicator Rises (GEI News, 20 December 2012)
