Inflation Weakens in China on Account of Coronavirus

Recent data released by the National Bureau of Statistics (NBS) reveals that producer prices in China witnessed a decline during the month of February even as consumer prices gained on the bank of coronavirus outbreak. China’s PPI declined by 0.4% YoY in February, after a rise of 0.1% in the previous month and coming in worse than economists’ expectations for a reading of -0.3%.

The extended lockdown enforced by Chinese authorities to contain the spread of the virus, which forced factories to down their shutters was the main reason behind the decline in PPI. Inflation is expected to weaken further in the near future on the back of weakening oil prices and subdued domestic demand which could force the PBOC to look at cutting interest rates to protect the economy.

On the consumer side, CPI rose by 5.2% YoY as forecast by economists and sightly lower than the 5.4% rise seen in January. Consumer inflation remained high as food prices soared by 21.9% while non-food prices increased by 0.9% in February. Prices of food and some medical supplies rose as a result of the coronavirus outbreak, supporting the increase in CPI figures.

Following the release of this data, the Chinese Yuan is trading slightly stronger against the US dollar on Tuesday. At the time of writing, USD/CNH is trading at around 6.933.

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Arslan Butt

Index & Commodity Analyst

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