Consumer Price Index increases 2.7% in July

China's consumer inflation further expanded in July, while factory-gate inflation continued to fall year on year but at a slower pace than in June.

The Consumer Price Index, a main gauge of inflation, rose by 2.7 percent last month from a year earlier, 0.2 percentage points faster than in June, the National Bureau of Statistics said on Monday.

The Chinese market generally ran in an orderly manner last month, as authorities had made overall plans for epidemic prevention and control, rescue and relief work as well as economic and social development, and had implemented policies and measures to ensure market supply and stable prices, said Dong Lijuan, a senior statistician at the bureau.

Food price inflation rose to 13.2 percent year on year in July from 11.1 percent in June, driven mainly by pork and vegetable price inflation “due to flooding along the Yangtze River that severely constrained production and shipments of these agricultural products,” according to Nomura.

Pork prices surged in July by 85.7 percent year on year compared with the 81.6 percent jump in June, as sequentially higher pork prices more than offset unfavorable base effects. 

Beef price inflation fell to 17.9 percent year on year in July from 18.5 percent in June, while lamb price inflation edged up to 11.1 percent from 10.9 percent over the same period. 

Vegetable prices rose by 7.9 percent year on year in July compared with the 4.2 percent increase in June, partly due to recent heavy rainfall and widespread flooding along the Yangtze River that weighed on the output and supply of vegetables. 

Fruit prices remained sluggish, down 27.7 percent year on year in July, despite an uptick from the 29.0 percent decline in June, while egg prices fell further by 14.5 percent year on year in July compared with the 13.6 percent drop in June.

Non-food price inflation, meanwhile, remained subdued at zero percent year on year in July, down 0.3 percentage points from June.

Among them, transport and communication prices edged down by 4.4 percent year on year in July but at a slower pace compared with June’s decline of 4.6 percent, “mainly led by transport-related fuel price inflation in line with the rise in global oil price inflation,” according to Nomura.

That said, cost inflation for transport facilities moderated to post a 2.7 percent drop year on year in July from the 2.3 percent fall in June.

On a month-on-month basis, the headline CPI rose 0.6 percent in July, reversing the decline of 0.1 percent in the previous month.

Food prices went up faster by 2.8 percent month on month in general, compared with the 0.2 percent rise in June, contributing 0.62 percentage points to the headline CPI increase.

Pork price inflation jumped to 10.3 percent in July from 3.6 percent in June, higher than the outturn in July 2019, “as hog and breeding sow stocks have contracted by around 20 to 25 percent since the initial outbreak of African swine fever in August 2018, the gradual recovery of catering businesses has boosted pork demand, and the recent heavy rainfalls and resultant flooding along the Yangtze River may constrain pig farming and hog delivery in the near term,” said Lu Ting, chief China economist at Nomura.

The Producer Price Index, which measures the cost of goods at the factory gate, fell 2.4 percent year on year in July, compared with a 3 percent drop in June, driven by sequentially higher prices of oil and other major raw materials, as well as a low base last year. 

In month-on-month terms, PPI inflation was unchanged at 0.4 percent in July from June, as market demand was gradually improving and global commodity prices continued to pick up, according to NBS's Dong.

Nomura expects CPI inflation to resume its downtrend in coming months and drop to around 1 percent at the end of the year, due mainly to the higher base from surging pork prices, while PPI inflation could rise further in coming months on a global recovery though its momentum could weaken, Lu said.