China's factory prices fall at slowest pace in 10 months in December

BEIJING: China's factory gate prices fell last month at their slowest pace since February, official data showed on Monday, suggesting the country's manufacturing sector continues to see a rapid recovery from the COVID-19 shock.

The producer price index (PPI) eased 0.4% from a year earlier, the National Bureau of Statistics said in a statement. The index was expected to decline by 0.8%, according to a median forecast in a Reuters poll, after a 1.5% drop in November. Monthly PPI rose at its fastest pace in four years.

Annual consumer prices meanwhile returned to growth last month, underpinned by a rebound in food prices, after falling in November for the first time in over a decade.

An impressive rebound in China's industrial sector has helped the world's second-largest economy post a robust recovery from the COVID-19 shock in early 2020.

The pace of recovery has led analysts to believe the People's Bank of China (PBOC) could begin to unwind loose monetary policy, but governor Yi Gang said on Friday China will prioritise stability in monetary policy this year.

"With economic activity set to remain strong and underlying inflation likely to continue rising, we think the PBOC will tighten policy this year," said Julian Evans-Pritchard, senior China economist, at Capital Economics. The data comes as Chinese manufacturing activity expanded in December but at a slightly slower pace amid higher raw material costs.

Prices for raw materials fell 1.6% from a year ago, compared with a decline of 4.2% in the previous month, the data showed. PPI rose 1.1% last month, the fastest pace since December 2016.

"Judging from the current significant rebound in global commodity prices, (annual) PPI could soon enter positive growth territory," said Zhang Yongjun, analyst at China Centre for International Economic Exchanges.

MUTED CONSUMER INFLATION

Consumer prices rose in December due to higher food prices.

The consumer price index (CPI) increased 0.2% from a year earlier, against expectations in a Reuters poll for a 0.1% rise, and bringing full-year consumer price inflation to 2.5% in 2020. The index had eased 0.5% in November, the first fall since 2009.

Food prices rose as extreme cold weather drove the transportation costs of fresh vegetables and fruit higher while seasonal holiday demand drove up the prices of meat products, said Dong Lijuan, senior statistician with the NBS.

Food prices rose 1.2% from a year ago, compared with a decline of 2.0% in the previous month.

But some analysts say a slide in pork prices, driven by the replenishment of hog stocks, may weigh on consumer prices over the next couple of months.