• China CPI jumped by 1.2% last month, leaving the increase on a year earlier at 2.9%, the fastest in over four years.
• The shifting timing of Lunar New Year holidays largely explains the large annual increase.
• Annual producer price inflation slowed to 3.7%, the weakest increase since late 2016.

Chinese consumer price inflation (CPI) jumped in February, driven higher by a sharp lift in food prices.

According to China’s National Bureau of Statistics (NBS), CPI rose by 1.2% from a month earlier, leaving the change on a year earlier at 2.9%, the highest level since November 2013.

The annual increase was well ahead of the 2.5% pace expected by economists, and is now sitting just shy of the People’s Bank of China’s annual target of around 3%.

So are inflationary pressure building in China as we’re starting to see in other parts of the world?

The short answer is probably not with the increase largely a result of higher food prices and a low base effect from a year earlier, two outcomes driven by the shifting timing of Lunar New Year holidays in China every year.

Last year, they began in late January. This year, they started in mid-February.

As demand for food lifts before the week-long holiday begins, it tends to increase food prices before they reverse after the holidays end.

So in 2017 food prices spiked in January before reversing in February. This year they jumped in February and will likely ease again in March.

Reflecting the different timing of Lunar New Year celebrations, food prices in February spiked 4.4% from a year earlier, well above the 2.5% increase reported in non-food prices over the same period.

With China’s CPI basket so heavily weighted towards food, it helps explain the large jump in the headline CPI figure in February.

Adding to the need for caution when interpreting the February result, as CPI jumped upstream price pressures eased.

Producer price inflation (PPI), also known as factory gate inflation, fell by 0.1% over the month, seeing the annual increase slow to 3.7%, the lowest level since November 2016.

PPI was increasing at an annual rate of 7.8% just one year ago.

The high base effect from a year earlier, along with the timing of Lunar New Year holidays and slower increases in commodity prices, all contributed to the continued deceleration last month.

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