Consumer Inflation Speeds up in China

China has just released some decent economic data, for a welcomed change. Consumer inflation, for February, moved higher in the month of February. This is a recovery from the five month low in January. Factory prices are still mired in deflation which gives the People’s Bank of China (PBOC) a good reason for further economic stimulus.

Their consumer price index or CPI was up 1.4 percent on an annual basis. Analysts expected a 0.9 percent print. We saw a 0.8 percent rise in January. The producer price index (PPI) which measures whole prices, fell 4.8 percent in February. This was worse than the expected -4.3 percent. The PPI fell 4.3 percent in January.

After this data was released, China’s mainland bourse, the Shanghai Composite opened 0.5 percent lower and the Hang Seng Index was down 0.3 percent.

These numbers reflect the Lunar New Year. In order to translate, or figure these numbers out, one should take the average of January and February as well as March. Doing this will give a better picture of inflation for the world’s second largest economy. Inflation is still contained giving ample room for more easing from the PBOC.

Crude oil continues to add downward pressure and the property sector continues to slow. This has put heavy deflationary pressures on their economy. Overall, their economy is bracing for slower economic growth in 2015. Last week, Beijing set their growth target at seven percent for the year. In 2014, their economy expanded at 7.4 percent. This was the slowest economic expansion in nearly two and a half decades.

Beijing set their CPI target at three percent for the year. In 2014 inflation came in at two percent, which was below their 3.5 percent target. Since November, the PBOC has injected cash three times into their economy. They have cut rates two times and reduced the reserve ratio requirement (RRR) for commercial banks.