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China's inflation to rise further: research

BEIJING
2016-03-07 16:55

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Inflation in China will likely rise in February over higher prices for food, housing and industrial products, a leading Chinese investment firm said Monday.

The consumer price index (CPI), a main gauge of inflation, is likely to grow by more than 2 percent year on year in February, accelerating from 1.8 percent in January, according to a research note from China International Capital Corp. (CICC). Food prices jumped around the Spring Festival, which fell in early February, and did not drop much after the holiday, keeping consumer inflation up in the next two or three months, the CICC explained.

Housing prices also rose faster, especially in first-tier cities, driving inflation higher, it said. Industrial products such as steel and coal have seen prices rebound, which will significantly narrow the decline in the producer price index (PPI), a measure of wholesale inflation, for February, the CICC predicted.

The official CPI and PPI figures are scheduled to be released on Thursday. A slower economy has sapped demand and softened inflation in China, but the CICC said the deflationary pressure is being eased. In January, China's PPI dropped for the 47th consecutive month to 5.3 percent, but the decline was milder than the 5.9-percent contraction seen from August to December. The higher inflation will reduce real interest rates and help consumption demand recover, the CICC said. It expected monetary policy to remain loose this year and bring down deflationary pressure.

The Chinese government set the growth target for M2, a broad measure of money supply that covers cash in circulation and all deposits, at about 13 percent this year, 1 percentage point higher than last year's target. In January, China's new yuan-denominated lending jumped to 2.51 trillion yuan (385 billion U.S. dollars) in January, up 71 percent from a year earlier and well above market forecasts. The strong growth partly reflected seasonal distortions caused by the Spring Festival but also showed solid financing demand, according to the CICC.

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