Chinese inflation slowed in February after the coronavirus negatively affected demand. At the same time, core inflation, which excludes prices for volatile products such as food and energy, has recorded its slowest acceleration rate in the last decade.

The core CPI posted a year-on-year growth of 1% in February, marking its weakest increase since June 2010. In the meantime, industrial prices returned to deflation as the producer price index registered a decline of 0.4% on an annual basis after a 0.1% increase in January. However, food costs have continued to rise as prices of pork have risen. For this reason, inflation in the country accelerated by 5.2% year-on-year in February, the National Statistical Bureau of China announced on Tuesday.

Deflation in production prices is expected to put pressure on global values. Overall demand and core inflation are slowing down due to the coronavirus and the already weak economy, but households are still facing higher food prices due to the effects of African swine fever, such as a reduced supply of pig meat.

“In the short run, this means that the People’s Bank of China may not take as much relief as the Fed and other central banks”, said Weijun (Larry) Hu, chief economist at Macquarie Group Ltd. “Consumer price inflation will slow in the coming months due to a slowing economy and a collapse in oil prices, so deflation will be a major concern later this year. Therefore, we expect more incentives later this year”, added he.

Food prices made the largest contribution to inflation due to the increase in market values ​​of pork, which reported an increase of 135.2% on an annual basis or the most since 2007.

China’s pork production dropped by more than 21% in 2019. The government said earlier this month that it still aims to restore 80% of normal pork production by the end of the year.