Consumer & Producer Prices (Jan.)

Inflation hits eight-year high

  • Seasonal volatility and coronavirus disruptions pushed up consumer prices in January. But the PBOC is likely to look through this temporary rise in inflation when setting policy.
  • Consumer price inflation increased from 4.5% y/y in December to an eight-year high of 5.4% last month (the Bloomberg consensus was 4.9%, our forecast was 5.0%). CPI also increased at its fastest pace in almost four years in m/m terms. Non-food inflation and core inflation (which strips out both food and energy prices) both edged up slightly. (See Chart 1.)
  • Higher food prices, which rose 4.4% m/m last month, were mostly to blame. Much of this increase reflects the usual volatility around Chinese New Year. But even adjusting for this, food prices rose 1.4% m/m in seasonally adjusted terms, faster than usual. It appears that supply disruptions and hoarding due to the coronavirus outbreak helped to keep food prices elevated during the week after Chinese New Year, when they would normally drop back. This pushed up the y/y increase in food prices. (See Chart 2.)
  • In contrast, the coronavirus outbreak appears to have had little impact on producer price inflation last month, which eased from -0.5% y/y to 0.0% thanks to favourable base effects (Bloomberg 0.0%, CE -0.7%). Prices remained flat in m/m terms (See Chart 3.) But it may simply have been too soon to see the impact of the hit to demand on prices as factories were closed during the last week of the month due to the Chinese New Year holiday. Recent moves in commodity prices suggest that we will see more of a drag on factory-gate prices this month. (See Chart 4.)
  • We think the PBOC will continue to focus on the risks from slower growth and factory-gate deflation, rather than food prices. It remains to be seen how long the coronavirus outbreak will push up consumer prices and weigh on producer prices. But even if the situation improves soon, we think the PBOC will come under pressure to loosen monetary policy further.

Chart 1: Consumer Prices (% y/y)

Chart 2: Consumer Price Inflation (% y/y)

Chart 3: Producer Prices

Chart 4: Producer & Commodity Prices (% y/y)

Sources: CEIC, Capital Economics

Julian Evans-Pritchard, Senior China Economist, +65 6595 1513,
Martin Rasmussen, China Economist, +65 6950 5701,

Julian Evans-Pritchard Senior China Economist
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