Inflation slightly below market expectation

China’s September inflation was slightly below market expectations, with consumer inflation and factory-gate inflation both slowing compared with the same period last year.

The Consumer Price Index, a main gauge of inflation, rose 1.7 percent last month from a year earlier, 0.7 percentage points slower than in September, the National Bureau of Statistics said on Thursday. 

The Chinese market generally ran in an orderly manner last month with stable supply and demand, after authorities’ efforts in pandemic prevention and control, and policies and measures to ensure stability on six fronts and security in six areas, said Dong Lijuan, a senior statistician at the bureau.

Food prices rose 7.9 percent year on year in September, down 3.3 percentage points from August, driven mainly by a high base caused by surging pork prices last September which more than offset the continued rise in vegetable prices due to the effects of summer flooding along the Yangtze River, according to financial services company Nomura.

Pork price inflation further plunged to 25.5 percent year on year last month from 52.6 percent in August, while vegetable prices extended rises by 17.2 percent in September from a year earlier, 5.5 percentage points faster than that in the previous month.

Fruit price inflation improved to post a 6.9 percent decline in September over the same period last year, compared with the slump of 19.8 percent in August, while egg prices dropped further 15.8 percent year on year from the fall of 11.0 percent in August.

Non-food price inflation, meanwhile, remained flat year on year in September, compared with the 0.1 percent increase in August. 

Among them, transport and communication prices fell by 3.6 percent, compared with a 3.9 percent decline in August, “largely due to higher inflation in communication-related price inflation,” according to Nomura.

In contrast, the sub-component in transport-related fuel price inflation dipped to post a 14.7 percent year-on-year drop in September from the 13.8 percent decline in August, in line with the fall in global oil price inflation. Cost for transport facilities also inched down by 2.9 percent year on year last month from the 2.8 percent fall in August.

Excluding food and energy components, core CPI inflation remained unchanged from August at 0.5 percent year on year in September, "thanks to the ongoing recovery in domestic demand."

On a month-on-month basis, the headline CPI edged up 0.2 percent in September, slower than the 0.4 percent rise in the previous month.

Food prices rose by 0.4 percent month on month in general, moderating sharply from the 1.4 percent jump in August, contributing 0.09 percentage points to the headline CPI increase.

Pork prices dropped significantly by 1.6 percent in September compared with the 1.2 percent inflation in August, much lower than its outturn in September 2019 (19.7 percent), “as pork supply has increased with the continuous recovery of hog production, the improvement of inventory, and the increase in the input of pork reserves,” said Dong.

Meanwhile, Lu Ting, chief China economist at Nomura, said: “We caution that the base effect will remain very unfavourable in October, as month-on-month pork price inflation remained elevated 20.1 percent in October 2019.”

The Producer Price Index, which measures the cost of goods at the factory gate, fell 2.1 percent year on year in September, 0.1 percentage points faster than August, mainly due to lower prices for oil and other major raw materials in September.

In month-on-month terms, PPI inflation inched down to 0.1 percent in September from 0.3 percent in August, as industrial production and market demand extended recovery, Dong said.

 Lu expects CPI inflation to fall to around 1.3 percent year on year in October and then to close to zero percent at the end of the year, due mainly to the higher base from surging pork prices last year. 

Xu Hongcai, deputy director of the economic policy committee of the China Association of Policy Sciences, meanwhile, believed that CPI and PPI will not show a sharp retreat because the overall economy is recovering and demand is picking up, thus consumer goods prices are expected to be relatively stable.