Pork price slump slows inflation rate

China’s consumer inflation continued to slow in April, dragged down by a slump in pork prices.

The Consumer Price Index, a main gauge of inflation, rose 1.8 percent year on year last month, slowing from the 2.1 percent annual growth in March and failing to reach the expectation of 1.9 percent, the National Bureau of Statistics said yesterday.

On a month-on-month basis, the CPI dropped 0.2 percent in April.

Sheng Guoqing, from the bureau, said the slower consumer inflation was mainly due to a year-on-year slump of 16.1 percent in pork prices, dragging down CPI growth by 0.43 percentage points. Prices of pork, China’s staple meat, fell 6.6 percent month on month.

The Ministry of Agriculture and Rural Affairs attributed the pork price decline to oversupply.

“As temperatures increase, pork demand will see a seasonal contraction. There is little likelihood of a pork price rebound,” the ministry said in a report.

Tang Jianwei, an analyst of the financial research center at Bank of Communications, expects falling pork prices to put downward pressure on CPI growth.

Australia and New Zealand Banking Group, however, said in a note yesterday: “Pork prices have been declining since February 2017 on a year-on-year basis, although this influence should moderate in the coming months due to a lower base.”

Food prices slipped 1.9 percent month on month in April and climbed only 0.7 percent year on year, according to the statistics bureau. Non-food prices rose 0.2 percent from March and 2.1 percent from April 2017.

“With a prudent and neutral monetary policy, supply and demand will remain stable. We’ll continue to see mild inflation,” said Cao Heping, a professor with Peking University.

Lian Ping, an economist with the BoCom, believes stable demand and moderate liquidity growth does not support high inflation despite previous market anticipation for price rises.

The M2, a broad measure of the money supply that covers cash in circulation and all deposits, grew 8.2 percent year on year at the end of March, compared with an 8.8 percent increase a month earlier, central bank data showed.

Lian forecast annual CPI growth this year will stay below the 3 percent target set by the government.

Yesterday’s inflation data should only have a “marginal influence on the rates market,” said David Qu, markets economist of ANZ. Over the longer term, investors will be focusing on Sino-American trade tensions, US dollar rates and overall economic growth, Qu added.

Average year-on-year CPI growth in the January-April period stood at 2.1 percent, according to the statistics bureau.

The Producer Price Index, which measures costs of goods at the factory gate, rose 3.4 percent year on year, up 0.3 percentage points from the March figure.

Sheng said the yearly increase in the PPI was faster in the nonferrous metal, fuel processing, and petroleum and gas exploitation sectors, while non-metallic mineral products and coal mining firms saw a slower gain in prices.

Transportation and communication prices gained 1.1 percent year on year, and rose 0.3 percent from March. Prices of vehicle fuel in April jumped 8.7 percent from a year earlier, compared with the 4.3 percent year-on-year growth in March.

Steel prices rebounded last month, with the China Iron and Steel Association’s steel price index returning to 112.8 at the end of April from 108.7 in March, “as the Lunar New Year holiday effect faded and construction activities have recovered from late March,” according to ANZ.

Deng Haiqing, economist with JZ Securities, attributed the faster PPI growth to a low comparison base. “We estimate that the annual PPI growth will unlikely exceed 2 percent,” Deng said.