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China February factory prices roar back, consumer deflation ebbs

Mar 10, 2021

BEIJING (Reuters) – China’s factory gate prices rose at the fastest pace since November 2018 in February as manufacturers raced to fill export orders, raising expectations for robust growth in the world’s second-largest economy in 2021.

The producer price index (PPI) rose 1.7% from a year earlier, National Bureau of Statistics data showed on Wednesday, compared with the median forecast for a 1.5% rise from a Reuters poll of analysts and speeding up from a 0.3% pickup in January.

The price data, in part driven by a low base a year earlier, was slightly firmer than expected.

China’s exports in February grew at a record 154.9% in dollar terms from a year earlier, when the country was in virtual shutdown during the height of the COVID-19 pandemic.

As producer prices extended their gains, consumer inflation remained downbeat, suggesting continued subdued household demand, a lagging driver of broader economic growth.

The consumer price index fell 0.2% in February from a year earlier, the statistics bureau said in a separate statement, compared with a 0.4% fall tipped by a Reuters poll and a 0.3% decline in January.

“We do not think the recent period of consumer price deflation is likely to persist. Shifting pork price base effects will nudge up food inflation, a tightening labour market will push up core inflation and energy inflation will rebound thanks to rising oil prices,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note.

“Given that officials have signalled a hawkish tilt in recent weeks, we think the People’s Bank of China will tighten policy this year,” he said.

Still, the government last week set a comparatively modest CPI target of around 3% this year. Last year, consumer prices rose 2.5%, undershooting Beijing’s goal of about 3.5%.

Beijing also set an economic growth target of above 6% for 2021, below analyst expectations for an expansion of more than 8%. China’s gross domestic product rose 2.3% in 2020, its weakest growth in 44 years but stronger than its global peers.

(Reporting by Gabriel Crossley; writing by Se Young Lee; Editing by Sam Holmes & Simon Cameron-Moore)

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