markets

China Consumer Prices Jump, Credit Slows on New Year Shutdown

Updated on
  • CPI jumps to highest since 2013; PPI slows for fourth month
  • Aggregate financing slumps on seasonal effect, M2 ticks up
Bank of America Merrill Lynch’s Helen Qiao discusses China’s CPI data and what it means for the economy.

China’s consumer inflation surged to the fastest in more than four years and credit growth slowed, as millions traveled home to feast with family and friends for the Lunar New Year holiday.

  • The consumer price index climbed 2.9% in February versus a forecast of 2.5% -- that’s the fastest pace since November 2013
  • The producer price index rose 3.7% from a year earlier, down from 4.3%
  • Aggregate financing at 1.17 trillion yuan ($184.4 billion); prior 3.06 trillion yuan
  • The broad M2 money supply rose 8.8%, compared with a forecast 8.7%


Domestic consumer prices are forecast to rise this year on resilient demand and recovering food prices, at a time when China’s factory inflation is providing less of an impulse to global price gains. And even though seasonal effects strongly distort the data, there is some evidence that a campaign to rein in credit risk is gaining further traction.

What Our Economists Say...

"We think the People’s Bank of China -- under Governor Zhou Xiaochuan and whoever takes the helm after him -- has a hawkish bias as they attempt to contain risks from high leverage," Bloomberg economists Tom Orlik and Fielding Chen wrote in a note. "But with the move in the CPI mainly food related, the inflation data itself doesn’t make a case for tightening."


The readings came as the legislature meets in Beijing to approve policy for the coming year, after pledging to step up efforts to curb financial risk. Policy makers have cut the nation’s budget deficit target for the first time since 2012 and set a growth goal of around 6.5 percent that omitted last year’s aim for a faster pace if possible. They maintained the targeted ceiling of 3 percent for consumer inflation.

Read more on China’s ‘impossible challenge’ on deficit target cut

“There’s a lot of inflation pressure coming through” for consumers, Helen Qiao, chief Greater China economist at Bank of America Corp. in Hong Kong, said in a Bloomberg Television interview. “It’s getting closer to 3 percent, which is their comfort level, so I’d say in particular they’d watch out for inflation pressure in food prices.”

“Strong demand during Chinese New Year and also the extreme low base last year are the two biggest factors that pushed up the CPI,” said Liu Xuezhi, an analyst at Bank of Communications Co. in Shanghai. “As those two factors are temporary, the CPI may head down in coming months, and the overall inflation pressure is still acceptable. PPI will likely see moderate growth, but is unlikely to fall into negative territory.”

New yuan loans stood at 839.3 billion yuan in February, versus a projected 900 billion yuan, PBOC data show. Policy makers have now dropped a target for M2 money supply growth, which had previously stood at 12 percent.

“When we’re pursuing quality-oriented growth, we’ll depend less heavily on the credit-based growth model,” PBOC Governor Zhou Xiaochuan said in Beijing Friday at a press conference on the sidelines of the People’s Congress. “We can use capital in the broad money supply more efficiently.”

Credit Details

  • Entrusted loans, organized by a bank between borrowers and lenders, fell by 75 billion yuan
  • Trust loans, made by trust companies to finance infrastructure and real estate, expanded by 66 billion yuan
  • Bankers’ acceptance, short-term credit issued by a company with a bank’s guarantee, rose by 10.2 billion yuan

— With assistance by Xiaoqing Pi, Miao Han, Yinan Zhao, and Kevin Hamlin

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