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China’s Consumer Prices and Inflation Support Consumer-Led Growth

Surbhi Jain

In Case You Haven’t Noticed, China’s Growth Drivers Are Changing!

(Continued from Prior Part)

Consumer prices rose 2.3% in China in February

China’s inflation rate jumped to 2.3% year-over-year in February. It stood at 1.8% in January. Though the inflation rate still lies significantly below the People’s Bank of China’s inflation target of 4.0%, it seems to be treading toward that benchmark.

Food recorded the biggest price rise

In February, food prices increased 5.8% year-over-year—the most among all categories. Inflation in cities continued to outpace inflation in rural areas, though the gap narrowed in February. While the inflation rate in cities grew 2.3% overall, in rural areas, it rose 2.2%. Increases in consumer goods prices by 2.2% and service prices by 0.5% also added to inflation.

Rising inflation is good news for investors in the iShares China Large-Cap ETF (FXI) and the Direxion Daily FTSE China Bull 3X ETF (YINN). Inflation reflects an increase in economic activity, which also means growth. The inflation rate for this emerging market (EEM)(VWO)(EDC) in February came in above market expectations and was the biggest in nearly two years.

Inflation to benefit China

Moderate inflation is good for an economy. It suggests increased economic activity. Increased consumer prices usually mean increased market demand for goods and services. It also means increased consumer spending as people start buying more in anticipation of a further price increase.

For now, inflation figures seem to fall in line with China’s consumption-led growth path. So, is the current panic about China’s economic future justified?

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