The lower-than-expected rise in the consumer price index (CPI) is no cause for optimism. Chinese policymakers should continue their efforts to fight inflation.
To the surprise of most economists who believed that inflation might climb to a new high, consumer prices, despite rising 0.3 percentage points in January compared with December, stayed 0.2 percentage points lower than the 28-month high of November. Though they were still 4.9 percent higher than the same month a year ago.
Some economists suspect that the move by the National Bureau of Statistics (NBS) to give diminished weight to food prices might have helped keep the rise lower than the market's expectations of more than 5 percent.
Food used to account for a third of the basket of goods that made up China's CPI, but the NBS announced on Tuesday it had reduced the weighting of food prices by 2.21 percentage points and increased that of living costs by 4.22 percentage points. While such an adjustment in calculating consumer price inflation is long overdue, to better reflect the evolution in Chinese consumption patterns, there were some concerns that the adjustment had distorted the figure.
After more than three decades of nearly double-digit economic growth, it is fully reasonable to give big-ticket items like housing a much larger share of the CPI basket now Chinese households spend a relatively smaller portion of their incomes on basic needs like food.
However, public suspicion of such an adjustment in inflation figures is also understandable. With food prices surging 10.3 percent year-on-year, significantly faster than the 2.6-percent increase in prices for non-food items, it is hard to conclude that a reduced weighting of foods will not affect the overall inflation level.
The NBS was quick to deny that such an important adjustment in the composition of the CPI basket has distorted the result. It said that the adjustment added 0.024 percentage points to January's CPI figure, denying media reports of a 0.3 percentage points drag down.
The statistics agency may be right. But the complexity of the new way of calculating the CPI and the sensitiveness of inflation figures all demand a more clear and convincing explanation to ease public suspicions. Yet, far more importantly, Chinese policymakers should be aware that the lower-than-expected CPI might be just a false dawn.
Adding to a squeeze on food supplies, China's wheat-growing northeast is in the grip of a prolonged drought that threatens its crop. Globally, climbing international commodity prices have already sent China's producer price index, a main gauge of inflation at the wholesale level, up 6.6 percent in the year to January, suggesting that price pressures will remain uncomfortably strong during the coming months.
With the peak of inflation still out of sight, Chinese policymakers should stick to their course of monetary tightening to fight inflation head on.