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10 Feb 2021 | 08:43

China consumer prices drop as services suffer

(Sharecast News) - China consumer prices unexpectedly fell in January, reversing an increase the previous month, official figures showed. Consumer price inflation dipped 0.3% from a year earlier, the statistics bureau said, missing a consensus forecast for no change. Prices had risen 0.2% in December.

Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said: "Consensus had looked a touch high given the unfavourable calendar effects created by the shifting timing of Lunar New Year."

Beamish said services prices in the world's second-biggest economy were unexpectedly weak as unadjusted prices fell 0.7% after a 0.3% increase in December.

"A good portion of that is calendar distortions, but its likely that adjusted services prices fell as well," Beamish said. "The squeeze on services sector margins must be intense, but it's possible that demand will not be strong enough until some semblance of normality resumes."

Food inflation picked up, driven by vegetables and pork. Non-food and energy prices fell 0.3% after rising 0.4% in December.

Producer price inflation returned to growth, registering a 0.3% increase after dropping 0.4% in December, in line with expectations. The increase was spurred by commodities and processing. Manufactured goods prices fell 1.2% with electrical machinery and equipment acting as a drag.

"PPI inflation is still all about commodities," Beamish said. "We should start to see inflation in the manufacturing sector by mid-year, though."

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