China inflation fastest since mid-2014 as food prices jump

China's consumer price rose the most since mid-2014 in February as food costs jumped amid the week-long Lunar New Year holidays, where millions binge on roast pork, duck, seafood and vegetables. The consumer-price index rose 2.3 per cent in February from a year earlier, up from 1.8 per cent in January, as food prices surged 7.3 per cent. Raising question marks over the durability of that pickup, non-food prices moderated from a month earlier to a one per cent increase and services inflation slowed. The producer-price index fell 4.9 per cent, narrowing from a 5.3 per cent decrease in January, extending declines to a record 48 months. Stabilization in prices, if sustained in coming months, will ease policy makers' concerns over deflation, which discourages new investment and erodes profit margins. Still, CPI remains well below the government's target for three per cent this year, meaning there's no constraint yet on policy makers' scope for easier monetary settings.
 

"Food prices surged before the Spring Festival and a cold wave pushed them higher," said Zhao Yang, Chief China economist at Nomura Holdings Inc. in Hong Kong. "The jump is temporary. Inflation is unlikely to become a concern that would limit monetary policy."

Zhao said he sees inflation moderating again in coming months, while there is some risk that rents will rise in the nation's biggest cities as property prices recover.

Mining and raw materials prices remained the biggest drag on factory prices.

China's inflation rebound compares with a subdued picture in some of the world's other large economies. In Japan, the central bank's key price gauge didn't move in January, hovering around zero compared with a 2 per cent inflation goal. Euro-area consumer prices rose 0.3 per cent in January, keeping pressure on the European Central Bank to ease further. Meanwhile, the cost of living in the US, excluding food and fuel, rose in January the most in four years when the so-called core consumer-price measure climbed 0.3 per cent.

For the PBOC, the acceleration in prices may be double edged.

"If households have to spend more money on food then they may cut back in other areas," said James Laurenceson, deputy director for the Australia-China Relations Institute at the University of Technology Sydney. "With household consumption now driving economic growth, that's a risk the PBOC would be keeping a close eye on. Overall, the case for a loosening of monetary policy stance remains, and perhaps has even been strengthened."