Seoul Gazette - China inflation picks up after Lunar New Year spending boost

China has struggled to raise consumption and stave off deflation for months as sluggish spending, a property slump and ballooning local government debt all weigh on growth.

The consumer price index (CPI), a key measure of inflation, rose 0.5 percent last month, up from a 0.1 percent rise in November, according to the National Bureau of Statistics.

The reading from January, which coincided with the start of the long Lunar New Year holiday this year, is the highest since August's reading of 0.6 percent.

Last month's reading exceeded the 0.4 percent rise predicted by Bloomberg analysts.

The NBS reported a rise in prices for goods associated with the holiday, where millions of people travel to their hometowns and celebrate with feasts and drinking.

Fresh vegetable prices rose by 2.4 percent year-on-year and the price of pork rose by 13.8 percent.

The boost in prices last month is "mainly due to higher food prices and tourism-related services prices on an earlier-than-usual Lunar New Year holiday," Goldman Sachs analyst Xinquan Chen wrote in a note on Sunday.

"But the boost is likely to become a drag in February as seasonal demand fades," Chen said.

China suffered its sharpest fall in prices for 14 years in January 2024, at the end of a four-month period of deflation.

Inflation stayed below 0.5 percent for nine months of 2024.

While deflation suggests the cost of goods is falling, it poses a threat to the broader economy as consumers tend to postpone purchases under such conditions, hoping for further reductions.

A lack of demand can then force companies to cut production, freeze hiring or lay off workers, while potentially also having to discount existing stocks -- dampening profitability even as costs remain the same.

Beijing unveiled a slew of measures to boost the economy last year, including cutting interest rates and cancelling restrictions on homebuying.

Last month, policymakers expanded a subsidy scheme for common household items, from water purifiers to laptops and electric vehicles.

During the holiday period, sales of household appliances and communication equipment at "key monitored retail enterprises" were up more than 10 percent year-on-year, the Chinese commerce ministry said on Thursday.

U.Hyeon--SG