Consumer inflation hits 6-month high

Huang Yixuan
China's year-on-year CPI and PPI both rise at a faster pace in April with a 6.1 percent jump in food prices.
Huang Yixuan

China’s consumer inflation continued to quicken last month to hit a 6-month high, while factory-gate inflation also increased at a faster pace.

The Consumer Price index, a main gauge of inflation, grew 2.5 percent in April from a year earlier, 0.2 percentage points faster than the previous month, to be the highest since October, the National Bureau of statistics said on Thursday. 

On a month-on-month basis, the headline CPI rose 0.1 percent last month, compared with a 0.4 percent decline in March. Among them, the pork price extended the rebound by 1.6 percent mainly due to African swine fever, according to the statistics bureau. 

Food prices jumped 6.1 percent year on year in April, contributing to a 1.19-percentage-point rise in the overall CPI growth. The pace of increase was also faster than the 4.1 percent recorded in March. 

The price of vegetables and fruits remained high, surging by 17.4 percent and 11.9 percent year on year, respectively, contributing to growth of 0.43 percentage points and 0.22 percentage points in the headline CPI.

The higher fruit prices were mainly due to the poor harvest in the northern area last autumn and the shortage of inventories this year, according to the bureau's Dong Yaxiu.

Pork prices soared by 14.4 percent year on year in April, 9.3 percentage points faster than the March figure and reversing the 4.8 percent decline in February, leading to a 0.31-percentage-point increase in overall CPI growth. 

"We believe the rapid spread of African swine fever since August 2018 could help push up pork prices by another 40 percent over the next six months," said Lu Ting, chief China economist of Nomura.

On April 23, Wang Junxun, spokesman of the Ministry of Agriculture and Rural Affairs, warned the risk of a more severe shortage in hog supply in coming quarters, due to a lack of hog inventory build-up by pig farmers fearing the spread of ASF. He also said hog prices may exceed their record high (in 2016) in the fourth quarter this year.

Non-food prices, meanwhile, also rose by 1.7 percent year on year, slightly slower than the 1.8 percent growth in March.

The price of health care, education, culture and recreation, and residence advanced 2.6 percent, 2.5 percent and 2 percent respectively. Together they contributed to a 0.22-percentage-point increase in overall CPI growth.

Lu expects the headline year-on-year CPI inflation to exceed 3 percent in some months this year.

The Producer Price index, which measures costs of goods at the factory gate, rose by a stronger-than-expected 0.3 percent year on year in April, 0.2 percentage points faster than the previous month, mainly due to a low base and more expensive oil prices, according to Nomura.

In month-on-month terms, PPI inflation also went up to 0.3 percent from 0.1 percent in March, much higher than the 0.2 percent decline in April last year.

Among upstream sectors, PPI inflation in the mining sector increased to 5.3 percent year on year in April from 4.2 percent in March, while in the processing sector, it rose to 0.9 percent from 0.4 percent.

PPI inflation also broadly improved among major industries, with price inflation rising significantly in ferrous metal processing industries, fuel processing, coal mining, and oil and natural gas extraction.

"As PPI is closely related to the industrial profit outlook, its gain is expected to support a continuous expansion in industrial activity, after April’s manufacturing PMI printed 50.1," said Xing Zhaopeng, China markets economist at the Australia and New Zealand Banking Group.

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