Chinese New Year, coronavirus push up China's consumer prices in January

Beijing

CHINA'S consumer prices inked their fastest monthly gain in more than eight years in January, fuelled by the new year holiday and supply chain disruptions from the ongoing coronavirus outbreak.

China's consumer price index (CPI) rose 5.4 per cent in January from a year earlier, according to data released by the National Bureau of Statistics (NBS).

Food prices were up 4.4 per cent, the most since 2008, with supply disruptions coming on top of the African swine flu which decimated China's pig farms all of last year. Pork prices, a staple of Chinese food, gained their most on record.

"A mix bag of higher pork prices, stronger Chinese New Year demand and the coronavirus outbreak pushed Chinese inflation," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Prices for the first two months of the year are structurally higher, due to a spending spree ahead of the two-week-long holiday.

Analysts say inflationary pressures will continue well into the first half of 2020 as the whole economy is struggling with the impacts of the coronavirus which has more or less grinded China to a halt.

Monday marked the official end of the extended Chinese New Year holiday. However, millions of workers have been unable to return to work and have remained stranded in their hometowns.

Cities such as Wenzhou and Hangzhou are constraining their populations to stay indoors, and companies are saying they do not expect to return to full-capacity and resume production for at least another month.

Villages are imposing blockades and forbidding any outsiders from entering. Even their own populations are not allowed to go out. Farmers are complaining they cannot get their food out and have been forced to kill millions of livestock.

"After the virus is contained and lockdown measures are lifted, demand will likely recover more quickly than supply, which may be more or less delayed by a potential disruption of supply chains, resulting in rising CPI inflation," Lu Ting, Nomura Holdings chief China economist, said in a note.

On the ground, shortages of food and medical supplies have seen a surge in prices with many families beginning to stockpile masks, medical gloves, hand sanitisers as the virus continues to kill close to 100 people a day.

"We believe the coronavirus outbreak may keep CPI inflation above 4 per cent year-on-year in the first half of 2020, due to hoarding by households (food and other supplies, for example), disruptions to transport and supply shocks as a result of those lockdowns," Mr Lu said.

The central bank has already announced sweeping measures to support both demand and the country's millions of ailing small and medium-sized enterprises. Despite the current inflationary pressures, analysts expect more state-controlled intervention.

"We think the People's Bank of China (PBOC) will continue to focus on the risks from slower growth and factory-gate deflation, rather than food prices. But, even if the situation improves soon, we think the PBOC will come under pressure to loosen monetary policy further," said Julian Evans-Pritchard, senior economist with Capital Economics.

Prices at factory gates improved slightly and rose 0.1 per cent, reversing a six-month downturn. This was due to improving conditions following the signing of the first Phase of the trade deal in mid-January.

However, those gains are not expected to be sustained amid growing economic headwinds from the coronavirus.