China January CPI gains to prove short-lived, economists say

Consumer prices in China edged past forecasts at the start of the year but some economists cautioned against expecting a sustained pick-up in inflation pressures.

The rate of gain in China´s consumer price index index accelerated from 2.1% year-on-year in December to 2.5% for January, according to the National Bureau of Statistics.

That was higher than the 2.4% clip predicted by the consensus.

Nevertheless, Julian Evans Pritchard, China economist at Capital Economics said: "Consumer and producer price inflation both accelerated last month. But we expect both to peak soon and think hopes for a sustained reflation in China will be disappointed."

Food prices rose from 2.4% to 2.7%, led by gains in the cost of vegetables and China´s staple meat, pork, ahead of the Lunar New Year holidays.

In parallel, non-food inflation jumped from 2.0% to 2.5% - a five-year high.

"The New Year holiday appears to have played a role – tourism cost inflation rose from 4.0% y/y to 9.9%. But the main driver was a sharp pick-up in energy cost inflation. This reflects a very weak base for comparison from January 2016 when oil prices hit their trough," Evans-Pritchard said.

Higher energy prices were also to be seen earlier in the pipeline in Janaury, feeding a noticeable rise in factory gate prices.

Producer prices in China rose by 6.9% year-on-year in December, driven by energy price gains.

"Looking ahead, we don’t expect such high rates of headline inflation to last. The base effects that have boosted year-on-year price gains in recent months are soon going to go into reverse. Meanwhile, tighter monetary policy, slowing income growth and cooling property prices should keep broader price pressure contained over the medium-term."