China inflation slips but stays high on coronavirus, food worries

BEIJING, China – The soaring price of pork and other food kept Chinese consumer inflation close to 8-year highs in February, official data showed Tuesday, March 10, as authorities battled the coronavirus outbreak.

Analysts said the figure would likely remain elevated for some time as measures put in place around the country to contain the deadly epidemic have put a huge dent in supplies of key goods.

However, the factory prices fell and observers warned of further drops as global demand for Chinese goods is battered by the spread of the disease.

Consumer inflation rose 5.2% on-year last month, slightly down from 5.4% the month before, which was the highest since October 2011. The reading was in line with forecasts in a Bloomberg News survey.

Food prices rose almost 22%, with pork increasing 135% – following a 116% rise in January – as the country's pig herds are ravaged by African swine fever that has seen millions of pigs culled.

"The sudden new coronavirus epidemic caused a more complex impact on price movements in February," said Zhao Maohong, director for the urban department of the National Bureau of Statistics.

Consumers were encouraged to stay home over an extended Lunar New Year holiday to avoid infections and businesses suspended operations. Cities also imposed various travel restrictions.

"Usually, year-on-year consumer price index (CPI) inflation drops by roughly 1.5 percentage points following the Lunar New Year holiday...so the 5.2% reading in February was actually quite unusual," said chief China economist at Nomura, Lu Ting.

Lu added that the figure suggests "supply shock does dominate CPI inflation in the short term."

Car sales hit

The producer price index – a barometer of the industrial sector that measures the cost of goods at the factory gate – fell 0.4%, slightly more than expectations of a 0.3% drop.

Iris Pang, ING chief economist for Greater China, told Agence France-Presse that "factories almost stopped operation in February," leading to expectations of a fall in prices.

She added that both indexes are expected to fall in March because of lower energy prices after a rout on oil markets.

But Pang said "this may not be a good thing for all companies as some depend on higher oil prices to have higher profits." She said she expects prices to normalize as people return to work and are more willing to spend.

Julian Evans-Pritchard of Capital Economics said core inflation, which strips out both food and energy prices, fell to a 9-year low, suggesting the virus outbreak "led to a marked weakening in demand-side price pressures."

Passenger car sales in China plummeted last month as well, dragged down by the epidemic, according to data released Monday, March 9, by the China Passenger Car Association (CPCA).

It said 124,649 sedans were sold last month, a 78.4% drop from a year ago.

"Due to the sudden outbreak of the new coronavirus epidemic, since the start of the Spring Festival break, dealers across the country basically closed their stores and stopped sales and service operations," the CPCA said. 

"Because of that, most dealerships' retail sales in the first 3 weeks of February were basically zero." – Rappler.com