The consumer price index rose 1% last month from a year earlier, the National Bureau of Statistics said on Thursday, the lowest level since February 2022. The index was down from 2.1% in January, and well below the median estimate of 1.9% in a Bloomberg survey of economists. 

Core inflation, which doesn’t include volatile food and energy prices, eased to 0.6% from 1%. Producer prices dropped 1.4% from a year earlier, following a 0.8% fall in January. Economists surveyed by Bloomberg had expected a 1.3% decline.

“China is deflationary,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group. “High unemployment and property slump continue to weigh on prices.”

He added that China’s muted price pressures show that the fear of the country’s reopening boosting global inflation “does not stand”.

China’s benchmark CSI 300 Index fell as much as 0.3% after the inflation data, before erasing losses to trade 0.1% higher as of 10.04am local time.

The CPI drop was attributable to “falling demand after the holiday and sufficient supply,” Dong Lijuan, NBS chief statistician said in an accompanying statement, adding that a mismatched Lunar New Year holiday led to a higher base of comparison with last year. The event fell in February in 2022. 

The rebound has progressed rapidly, with demand for services jumping and home sales showing some signs of stabilisation. Still, Chinese authorities expect consumer inflation to remain mild this year compared to other economies that reopened after the pandemic and saw skyrocketing prices. The National Development and Reform Commission has said they’re confident CPI will stay within the target of “around 3%” this year.

People’s Bank of China Governor Yi Gang said last week inflation will remain under control in 2023, while suggesting that interest rates are appropriate – a sign that monetary policy will largely be stable. 

“Inflationary pressures are generally controllable,” Liu Guoqiang, vice governor of the central bank, also said at a press conference last week. He added, though, that it’s still necessary to “remain vigilant against inflation” given the unpredictability of external factors. 

Factory prices, meanwhile, are expected to remain muted, given last year’s high base of comparison. Dong of the NBS said February’s drop was because last year’s commodities prices, including crude oil, were high. 

A push by the central government to boost investment, along with the housing market recovery, may lead to rising demand for industrial products, though. BM/DM