China’s January Inflation Underwhelms — Factory Prices Still Stuck in the Doldrums

CNBC, the Wall Street Jounral, Bloomberg, and Reuters contributed to this report.

China’s consumer prices ticked up in January, but not by much — and factory-gate prices are still trapped in deflation, underscoring the weakness in domestic demand despite signals from Beijing that looser policy may be coming.

Official data showed the consumer price index rose 0.2% year-on-year in January, short of the 0.4% economists had pencilled in and down from December’s 0.8% jump. On a monthly basis CPI also rose 0.2%, missing the expected 0.3%. Strip out food and energy and core inflation climbed 0.8% year-on-year, easing from December’s 1.2%.

Meanwhile, producer prices remained in the red. The producer price index fell 1.4% year-on-year — slightly better than the 1.5% drop economists expected and an improvement from December’s 1.9% fall. On the month, PPI actually rose 0.4%, the fourth straight monthly improvement, helped in part by recent gains in global gold prices.

Analysts warned the headline numbers are partly distorted by the timing of the Lunar New Year (this year’s holiday falls in mid-February rather than January), so January’s figures should be read together with February’s for a clearer picture. As Zhiwei Zhang at Pinpoint Asset Management put it, the calendar mismatch “makes interpretation of macro data difficult.” Xavier Wong at eToro similarly suggested treating January and February as one combined data read.

The bigger picture is familiar: factory-gate deflation has dragged on for years and continues to squeeze manufacturers’ margins, while weak consumer demand and a sluggish property sector have kept inflation tame. Policymakers look worried enough to hint at looser monetary settings ahead of big economic meetings — the central bank has talked about “appropriately loose” policy and officials are expected to set this year’s targets at next month’s parliamentary session.

Economists say the data reinforces the case for more policy support. With underlying demand still soft, stimulus that nudges spending rather than just boosting investment is likely to be on the table — even if officials prefer investment-led growth and worry that consumption-focused handouts are a one-off that would add to debt.

Short version: consumer inflation rose, but not as much as expected; factory deflation is stubborn but showing small signs of easing; and Beijing’s rhetoric suggests more policy moves could be coming to try to kick-start demand.