March CPI surges to 5-month high

China’s consumer inflation quickened last month, coming in at a five-month high, while factory-gate inflation picked up for the first time in nine months. 

The Consumer Price index, a main gauge of inflation, grew 2.3 percent in March from a year earlier, 0.8 percentage points faster than the previous month, the national Bureau of statistics said yesterday. 

The March figure was the highest since October and rebounded beyond 2 percent for the first time since December. Pork prices rose in March for the first time after falling for 25 consecutive months, leading to higher food prices and boosting the CPI growth. 

Pork prices jumped 5.1 percent year on year, reversing the 4.8 percent decline in February. it led to a 0.12-percentage-point increase in overall CPI growth. 

On a month-on-month basis, the pork price moderately went up 1.2 percent nationwide as outbreaks of african swine fever were gradually contained, according to the statistics bureau. 

Financial service group Nomura paid particular attention to the pork prices in its analysis.

“Pork prices are set to become a major source of CPI inflation this year as the stock of hog stocks and breeding sows have fallen to historically low levels,” said the Nomura. 

Food prices jumped 4.1 percent year on year last month, contributing to a 0.82-percentage-point rise in the overall CPI growth. 

The pace of increase was also much faster than the 0.7 percent recorded in February. The prices of vegetables and fruits surged 16.2 percent and 7.7 percent year on year, respectively. 

The sharp increase of vegetable prices can be attributed to low yields in spring and cold rainy weather. non-food prices posted an increase of 1.8 percent year on year last month, contributing to a 1.46-percentage-point increase in the overall CPI growth. 

On a month-on-month basis, the CPI dipped 0.4 percent in March, compared with the 1 percent growth in February, with food prices down 0.9 percent and non-food prices shedding 0.2 percent. 

Prices of eggs, aquatic products and vegetables declined after the spring Festival by 6 percent, 3.6 percent and 2.6 percent respectively. 

Beef, lamb and chicken prices also fell by 1.8 percent, 1.7 percent and 1.6 percent from a month earlier. among non-food sectors, with the shrinking number of travelers after the Spring Festival, the prices of air tickets, travel agency charges and hotel accommodation dropped by 15.9 percent, 11.1 percent and 1.5 percent respectively. 

Prices for vehicle repair and maintenance, housekeeping services and haircuts fell 5.3 percent, 4.1 percent and 3.9 percent respectively, with workers returning to the cities. 

The Producer Price index, which measures costs of goods at the factory gate, rose 0.4 percent year on year in March, 0.3 percentage points faster than the previous month. 

This marked the first acceleration in PPI growth since June, with the market fear over deflation risks largely abated, according to an analysis of the Bank of Communications. Despite the high base a year earlier, the prices of mining-related products rose 4.2 percent in March, the highest since November. 

The prices of raw materials also improved from a 1.5 percent drop in February to rise 0.6 percent in March. The trend is consistent with the jump in the factory output index in the manufacturing Purchasing Managers’ index, the Australia and New Zealand Banking Group said. 

Prices of the hot-rolled coil have also breached 4,000 yuan (US$595) per ton as producers responded to rising iron ore prices due to Brazilian supply disruptions, according to the ANZ Group. 

“China’s inflation data for March indicate that the supply shocks faced on the consumer and producer fronts have helped to mitigate deflationary risks,” said Raymond Yeung, chief China economist of the ANZ Group. 

“Both CPI and PPI are unlikely to retreat in the second quarter, in our view,” Yeung said. 

Analysts with the CITIC securities Co expected the PPI to continue expanding in April on the low-base effect. 

Considering the high producer price base last year and China’s reducing value-added tax rates, however, the PPI may contract in May and June of 2019, they said.