China Factory Prices See First Rise In A Year

Factory prices rose in China for the first time in a year last month as the country's vast industrial sector leads a recovery from the virus pandemic, with analysts hailing the data as a turning point for the world's number two economy.

But the lingering effects of the disease weighed on the country's vast army of shoppers as consumer prices slipped, hit by new outbreaks that led to the reimposition of containment measures.

Official data showed the producer price index (PPI), a key measure of input costs, came in at 0.3 percent in January, having fallen every month but January in 2020 owing to a collapse in demand as the virus broke out around the country and then the world. The figure was in line with forecasts and a big improvement in the 0.4 percent fall seen in December.

"We believe that the turn of PPI is very solid, from a deflation trend to an inflation trend," said ING chief economist for Greater China Iris Pang. "Although this is mild, it is a turn, a very important turn, and it will last for the rest of 2021."

The reading comes as China leads a recovery in the world economy, with the rollout of vaccines and slowing infection rates fuelling hopes that lockdowns and other containment measures can be eased, setting up a huge bounce this year.

However, the consumer price index edged down a worse-than-expected 0.3 percent as a spike in infections that led to new tough restrictions in the north of the country combined with a high base from January last year.

"With the Spring Festival (Lunar New Year) taking place in February this year, and the impact of a partial epidemic spread, there were decreases in both residents' travel and some contact-based services in January," said National Bureau of Statistics official Dong Lijuan.

Dong added that air ticket prices fell by a third, while travel agency fees dropped nearly 10 percent.

This year, authorities have been encouraging residents to stay at home instead of travelling for the holiday owing to the virus but CPI is still tipped to recover.

"Consumer price inflation is likely to spike in February as the New Year effect reverses," said analysts at Capital Economics, adding the slip in January was "no cause for concern".

Pork prices, however, continued a downward trend after costs of the staple meat soared last year as an African swine fever outbreak led to the culling of more than a million pigs.