China inflation stabilises but more tightening expected

Inflation in China stabilised in February. Consumer prices were up 4.9 percent from February last year, the same rate as in January. And core inflation, which does not include volatile food costs, slowed.

It is not yet clear if the inflationary trend is over. If it is not, there will be more pressure on the Chinese government additional monetary tightening, including interest rate rises.

Beijing started a sustained tightening campaign late last year, most importantly reining in banks, which unleashed a torrent of credit over the past two years, leaving the economy awash with cash.

People’s Bank of China Governor Zhou Xiaochuan was guardedly optimistic. “If we observe the CPI (consumer price index) figures for December, January and February, although they are high, inflationary expectations are currently relatively stable,” he said at a news conference.

Analysts pointed out it is notoriously difficult to interpret Chinese economic data at the start of the year. Many businesses shut their doors or run at half speed for weeks because of the Lunar New Year, which was in early February this year.

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