China's mild inflation to continue into 2018

BEIJING — China's consumer inflation grew at a slower pace in 2017 and is expected to continue at a mild rate this year, allowing room for policy maneuvers to realize high-quality development.

The consumer price index (CPI), a main gauge of inflation, rose 1.6 percent year-on-year in 2017, down from 2 percent for 2016 and well below the government's target to hold the CPI at around 3 percent, the National Bureau of Statistics (NBS) said Wednesday.

NBS senior statistician Sheng Guoqing attributed the slowdown mainly due to a 1.4-percent decline in food prices, which were down for the first time in 15 years. Pork and vegetable prices both dropped by more than 8 percent year-on-year.

Last year, the CPI increase peaked at 2.5 percent in January, and later fluctuated below 2 percent during the rest of the year.

New NBS data showed the CPI rose 1.8 percent year-on-year in December, slightly up from 1.7 percent in November.

Previous forecasts from financial institutions fell within the 1.7 percent to 2.1 percent range.

The pickup was driven by a fast increase in non-food prices, which rose 2.4 percent year-on-year last month.

Prices for medical products and services rose 6.6 percent year-on-year and housing-related prices rose 2.8 percent, while educational, cultural and entertainment prices rose 2.1 percent, the bureau said.

Food prices dropped 0.4 percent year-on-year, contributing to a 0.08-percentage-point drop in the overall CPI increase last month.

On a month-on-month basis, the December CPI increased 0.3 percent from November, as food prices rose 1.1 percent from November.

The producer price index (PPI), which measures costs for goods at the factory gate, climbed 6.3 percent year-on-year, compared with a 1.4-percent drop in 2016, ending the declining trend for the past five years.

Lian Ping, chief economist with the Bank of Communications, said rising producer prices may push up consumer prices in the longer term.

"On the low base in 2017, CPI may increase at a faster pace this year, but there will not be noticeable inflationary pressure against the backdrop of stable demand and tight monetary environment," Lian said.

China Galaxy Securities said that food prices in 2018 would hold steady while non-food prices, especially service prices, would go up.

The annual CPI rise will reach 2 percent this year, the brokerage firm said.

"The inflation level is not going to be a major concern this year," Lian said.

Analysts say the mild inflation leaves ample room for the government's macro policy maneuvers.

Tian Guoqiang, professor with Shanghai University of Finance and Economics said that China would be able to make better use of monetary and fiscal policies to relieve the burden for the real economy.

China will adopt a prudent and neutral monetary policy and a proactive fiscal policy this year, according to the central economic work conference last month.

With a low inflation level, the country can continue to deepen supply-side structural reform, raise innovation capacity and competitiveness of the economy and push forward high-quality development, Tian said.

High-quality development is "the fundamental requirement" for determining the development path, making economic policies, and conducting macroeconomic regulation at present and in the period to come, according to the central economic work conference.