China's consumer inflation rose modestly in December, official figures released Thursday showed, though it remained below two percent in a sign the economy is still struggling with the effects of years of zero-Covid.

The consumer price index -- the main gauge of inflation -- hit 1.8 percent on-year, up from 1.6 percent in November, the National Bureau of Statistics (NBS) said.

Inflation for the whole of 2022 rose by an average of two percent, making China an outlier compared with other major economies where prices have soared on the back of a spike in energy and food costs, and supply chain snarls.

Beijing had targeted an average inflation rate of three percent for 2022, and the lower figure will give authorities room to provide much-needed stimulus to the economy.

But the world's second largest economy is still reeling from the effects of years of its zero-Covid policy, which hammered businesses and supply chains and dampened consumption, though many restrictions have now been lifted.

The producer price index, which measures the cost of goods leaving factories, contracted in December for the third consecutive month.

The 0.7 percent shrinkage is a further sign of weak demand and reduced margins for businesses.

"The economy is still running below potential," Zhiwei Zhang of Pinpoint Asset Management wrote in a note.

"High-frequency indicators such as traffic flows picked up recently, but demand is still not strong enough to lead to inflationary pressure. Inflation is not a constraint for monetary policy to loosen further this year."

China has been relatively unaffected by a global surge in food prices since Russia's invasion of Ukraine in February.

But officials are keeping a close eye on pork, widely consumed in China, to avoid popular discontent.

While food prices in general rose a moderate 2.6 percent on-year in December, pork surged 22 percent.

China began lifting most of its zero-Covid measures at the beginning of last month.

Despite the end of the restrictions, economic activity has struggled to recover as the virus has spread rapidly across the country, hitting economic activity.

China will unveil its 2022 growth figures on Tuesday.

Beijing has set an annual economic growth target of about 5.5 percent, but many observers think the country will struggle to hit that, despite announcing a better-than-expected 3.9 percent expansion in the third quarter.

Asian markets rise on optimism ahead of US inflation data
Hong Kong (AFP) Jan 12, 2023 - Asian markets rose Thursday as traders grew confident ahead of data later in the day that is expected to show another softening of US inflation, giving the Federal Reserve room to slow its pace of interest rate hikes.

Wall Street's three main indexes provided a strong lead, with the S&P 500 and Nasdaq soaring more than one percent each thanks to a rush back into beaten-down tech firms.

With optimism over China's reopening already fuelling a rally across Asia, signs that the Fed's long-running monetary tightening campaign is finally paying off has provided investors with more reason to be happy.

The consumer price index reading on Thursday is the key event for investors this week, though analysts warned that an above-forecast reading would deal a hefty blow to confidence on trading floors.

"An in-line or softer-than-expected CPI will likely result in a rally, whereas a hotter number could easily tip over the applecart," said Arthur Hogan at B. Riley Wealth.

"Good news for the economy can become good news for markets."

In early trade, Hong Kong again led the gains by rising more than one percent while Shanghai, Sydney, Seoul, Wellington, Taipei, Manila and Jakarta also rallied. Tokyo was flat.

Gains were also helped by comments from Fed official Susan Collins backing a quarter-point rate hike at the bank's next policy decision on February 1.

Collins, who is head of the Boston Fed, told The New York Times that slowing the pace of increases would give policymakers a chance to see how their efforts to rein in decades-high inflation were working.

Investors are also keeping tabs on developments in China as it emerges from years of strict zero-Covid containment measures.

While the long-term outlook remains positive, soaring infections across the country are leading to worries about the effect on economic activity.

However, SPI Asset Management's Stephen Innes said: "Recent surveys suggest that the first wave has already peaked in China. And though spot economics remain poor, the market has discounted the near-term headwinds as hope springs eternal once the winter Covid waves pass."

Building expectations for Chinese demand and a healthy 2023 continue to put upward pressure on oil prices, which jumped around three percent Wednesday, with traders ignoring data showing a massive pick-up in US inventories.

"Energy traders should get used to seeing oil prices head higher," said OANDA's Edward Moya. "Oil demand is coming back and expectations are high that China's demand is about to skyrocket."

Several crude experts have tipped the commodity to top $100 a barrel this year, with top hedge fund manager Pierre Andurand warning last week that it could pass $140.

- Key figures around 0230 GMT -

Tokyo - Nikkei 225: FLAT at 26,455.06 (break)

Hong Kong - Hang Seng Index: UP 1.1 percent at 21,661.55

Shanghai - Composite: UP 0.3 percent at 3,171.51

Euro/dollar: UP at $1.0766 from $1.0758 on Wednesday

Dollar/yen: DOWN at 131.69 yen from 132.47 yen

Pound/dollar: UP at $1.2158 from $1.2150

Euro/pound: UP at 88.55 pence from 88.53 pence

West Texas Intermediate: UP 0.3 percent at $77.65 a barrel

Brent North Sea crude: UP 0.3 percent at $82.91 a barrel

New York - Dow: UP 0.8 percent at 33,973.01 (close)

London - FTSE 100: UP 0.4 percent at 7,724.98 (close)

dan/qan

THE NEW YORK TIMES COMPANY

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