Consumer price inflation (CPI) in China rose at the fastest pace in three years, according to data released by the nation’s National Bureau of Statistics (NBS) on Monday. Despite the implication for rates, the offshore Yuan futures (CNH) weakened.
Crunching China’s Inflation Print: Consumer prices in the world’s second-largest economy rose 1.3% year over year (YoY) in February compared to a 0.2% rise in January. The February rate was the fastest since January 2023. Economists, on average, estimated a more modest 0.9% climb for the month.
The sharp rise came about due to a 1.7% increase in food prices amid the Lunar New Year holiday, reversing the 0.7% drop in January. Tourism and travel services prices climbed 11.7% and miscellaneous services prices jumped 15.4%.
ING Greater China Chief Economist Lynn Song sees prices remaining positive this year due to the turn in the pork price cycle. While noting that at the “Two Sessions” annual meeting held earlier this month, policymakers set a 2% inflation target and vowed to steer general price level back into positive territory, Song said it appears that they may not have to do much in this direction.
The monthly CPI rate also accelerated to 1% from 0.2%.
Wholesale prices in China, meanwhile, declined 0.9%, slower than January’s 1.4% drop and the consensus estimate for a 1.1% decline. The February producer price inflation rate marked a 19-month high. On a monthly basis, the PPI inflation was positive for a fifth straight month.
ING’s Song noted that the upward thrust on wholesale prices came from non-ferrous metals mining (up 30%) and smelting & processing (up 22.1%). He noted that crude and natural gas industries saw a price gain of 5.1% month over month but a decline of 12.9% YoY. “With the price shocks in March, we should see further upside on this subcategory in next month's report,” the strategist said.
Rate Outlook: ING sees room for the People’s Bank of China (PBoC) to cut rates further this year, unless the oil price shock is notably stronger and longer than expected. “We continue to see room for a rate cut in the second quarter as the economy likely got off to a soft start in 2026, though odds are rising for policymakers to choose a more cautious route and push this back, assuming energy disruptions persist, and global inflationary pressures pick up,” the firm said.
At the “Two Sessions” meeting, Premier Li Quang suggested GDP growth of 4.5%-5% for 2026, the slowest pace since early 1990s.
Bullish for Commodity Futures?
Base metal futures could see an upward thrust, capitalizing on the producer price inflation’s trajectory and the manufacturing growth, as evidenced from the recent purchasing managers’ surveys.
The combination of stronger Chinese inflation and tightening energy markets could create upward pressure across commodities, especially in metals and oil-linked contracts.
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