WBCCD Westpac Banking Corporation

BEIJING—Consumer inflation in China edged up in January, buoyed by rising food prices ahead of the Lunar New Year holiday, though economists said the uptick is likely to be short-lived as excess capacity weighs on the economy.

China's consumer-price index rose 1.8% in January from a year earlier, the government's statistics bureau reported Thursday. The rate is higher than December's 1.6% rise and matched the median forecast by 13 economists in a survey by The Wall Street Journal.

Despite the rise, price pressure remains weak and deflation is still a risk for the world's second-largest economy as it struggles to slough off a housing glut, high debt levels and factories pumping out too many goods.

"Deflation is the main risk rather than inflation," said ANZ Research economist Li-Gang Liu. "Domestic demand is quite weak. They need to deal with overcapacity," he said.

Prices at the factory gate remain deep in deflationary territory and have been so for nearly four years. The producer-price index declined 5.3% in January from a year earlier, slightly better than expected. This compared with a 5.9% year-over-year drop in December.

The rise in January's consumer inflation came from double-digit price increases for pork, China's staple meat and a fixture in dishes served over the Lunar New Year holiday, which ends this month. Prices for vegetables and fruits rose too due to colder weather, statistics bureau economist Yu Qiumei said in a report.

Zhou Jinhong, a 40-something accountant working in Beijing, said she has seen pork, beef and egg prices increase, prompting her to consider changing her eating habits and shop more carefully.

"If pork gets too expensive, I'll consider buying less," she said, emerging from a Beijing Hualian supermarket in the northwestern part of the capital. "But supermarket sales can compensate for higher prices in other goods. That can make the increases less obvious."

Lower prices tend to help an economy if consumers and companies use the savings to buy and invest elsewhere. A protracted downward price pressure can cause them to delay spending in the belief that waiting will result in still lower costs in the near future, dragging down growth. It can also make debt repayment more difficult.

Consumer prices in China rose 1.4% in 2015, well below the government's goal of keeping them under 3%, the smallest increase since 2009.

China continues to battle deflation at the factory gate as the price of oil and other commodities weakens further. Chinese steel prices in the 2015 fourth quarter were 60% to 70% below peak second-quarter 2008 levels, on average, the Australian government and Westpac Bank said in a report this month.

Weak consumer inflation gives policy makers more leeway to loosen monetary and fiscal policy further. Economists said they expect Beijing to continue to cut interest rates and reduce the portion of reserves that banks are required to maintain.

"The economy still faces huge downward pressure," said Nomura Group economist Zhao Yang. "Monetary policy will likely remain supportive."

Mr. Zhao said he expects the central bank to make four cuts in required bank reserves and two broad interest-rate cuts in 2016. ANZ Research's Mr. Liu said the next cut in bank reserves could come this quarter to be followed by one or more broad interest-rate cuts later this year.

Low inflation or outright deflation is also weighing on tax receipts, said rating company Moody's Investors Service in a report, as fiscal revenue last year grew by 8.4%, its smallest rise in over two decades.

Liyan Qi and Grace Zhu contributed to this article.

Write to Mark Magnier at mark.magnier@wsj.com

(END) Dow Jones Newswires

February 17, 2016 23:55 ET (04:55 GMT)

Westpac Banking (ASX:WBCCD)
Historical Stock Chart
From Nov 2024 to Dec 2024

Westpac Banking (ASX:WBCCD)
Historical Stock Chart
From Dec 2023 to Dec 2024