China: Lower inflation rate reflects low momentum

Chinese inflation rate dropped to 2.1% in March after 3.2% in February. On average for the first quarter inflation rate was 2.4 % marginally higher than during the last 3 months of 2012 (2.1%) but still far below government forecast of 3.5% for 2013.

4 points to notice

  • The lower inflation rate between February and March come from food prices. Their change is lower after the end of New Year period. Yearly food prices increase was 6 % in February but only 2.7% in March. Moreover there were specific issues in March on pork and poultry for which prices were lower. On pork it can reflect consumer uncertainties after that thousands of porks were seen dead in Huangpu river in Shanghai. On poultry it can come from risks associated with avian flu
  • Non-food prices change was lower in March (1.8%) than in February (1.9%). Beyond this marginal change this reflects the absence of tensions at the heart of the Chinese economy. At the beginning of next week we will have a bunch of data (Q1 GDP) on which we do not have to expect too much growth revival.
  • The Central Bank of China has explained that monetary stance will be neutral in the coming months. This means that the central bank will try to manage all the liquidity that has been put in the system since last summer. The outlook is then a little different.
  • The low inflation rate in China reflects an economy that do not grow too rapidly and in which there is not a lot of pressures. As government inflation rate forecast is 3.5% for 2013 there will be no austerity and this can let some degree of freedom to spur growth.