China's consumer prices rose at a faster-than-expected rate in January, as food prices surged ahead of the Lunar New Year , sparking debate over what the numbers are really saying.
January's consumer price index rose 4.5% in January from a year earlier, the National Bureau of Statistics said in a statement Thursday, exceeding consensus analyst expectations of 4.1%, according to separate Reuters and Dow Jones Newswires surveys.
The inflation spike stood in stark contrast to a softening trends in recent months, as prices had risen 4.1% in December, 4.2% in November, and 5.5% in October.
Ting Lu, China economist at Bank of America Merrill Lynch , said the details of the inflation report backed up the view that the inflation rise was merely a temporary blip.
Food prices shot up 10.5% during the month, compared to a 9.1% rise in December, while non-food item inflation was 1.8%, easing from 1.9% in the prior month.
The breakdown, he said, offered a snapshot of spending and what amounts to a buoyant holiday mood, with this year's Chinese Lunar New Year festival getting underway nearly a week ahead of last year's.
"Investors definitely should not read too much into the inflation," Lu said, adding that Merrill Lynch expected China's CPI inflation rate to drop to around 3.3% in February.
He added that China's policy makers are aware of the volatile data that's released around this time of year and generally ignore the figures when making policy decisions.
Analysts at IHS Global said a clearer picture wouldn't emerge until March, when anomalies that result from the shifting dates of the Chinese New Year are factored out, adding that "the inflationary spike could be short-lived" as the softening housing market and weak global exports ripple through the economy.
"With demand weakening this year, we believe disinflationary pressure will continue to exert itself through 2012," the analysts said in a note following Thursday's data.
The data also showed that China's producer price index eased further, rising just 0.7% year-on-year during the month as compared to 1.7% in December.
Economists polled by Dow Jones Newswires had expected a 0.6% increase in January PPI.
Case for concern
Royal Bank of Scotland analysts, however, saw the Thursday data in a more worrying light.
The surge in consumer prices, the largest month-on-month increase in four years, couldn't be explained away in terms of seasonal factors, they said.
The trend indicated that demand in parts of the economy were outstripping existing capacity, the RBS analysts said, highlighting food transportation as one area of weakness.
Even when adjusting for the seasonal impacts, the inflation figures still rose at their fastest pace since November 2010 .
What's in store could be a reality check for the expectations that China has the latitude to crank up credit growth in a non-inflationary way to stave off an economic slowdown.
"We have been less sanguine than many market observers about the disinflation process in China and the room for the government to loosen policies," RBS said, adding that their full-year forecast is for inflation to remain above the 4% target set by the People's Bank of China .
The data dragged on Asian equity markets, with Hong Kong's Hang Seng Index losing 0.2%, although China's Shanghai Composite rose 0.3% after dropping immediately following the release.
Rumor strikes again
In a related development, news organizations and some trading desks were caught off guard by purportedly leaked official data that appeared ahead of the Statistics Bureau numbers on the Chinese language website Hexun.com
The fakes figures, reported across English-language media before they were eventually retracted, turned out to be a carbon copy of official statistics for November.
Merrill's Lu said the hoax was similar in nature to rumors that had helped to fire up expectations of a cut to banks' reserve requirements in December and again in February, which failed to materialize.
