Inflation remains steady

Huang Yixuan
China's headline CPI figure for June is unchanged from May as higher prices for food offset lower prices in the non-food sector. 
Huang Yixuan

China’s consumer inflation remained steady in June, while factory-gate inflation stayed flat as well.

The Consumer Price Index, a main gauge of inflation, grew 2.7 percent in June from a year earlier, the same pace as the previous month, data from the National Bureau of Statistics showed on Wednesday. 

The headline CPI figure was unchanged from May, as higher food price inflation (which was up to 8.3 percent year on year in June from 7.7 percent in May) offset lower non-food price inflation (which dipped to 1.4 percent from 1.6 percent). 

Fruit prices skyrocketed by 42.7 percent from a year earlier, 16 percentage points faster than the previous month, boosting the CPI rise by 0.71 percentage points. 

"In addition to the impact of factors such as climate, the lower base prices of the same period last year is also one of the reasons for the expansion," said the bureau's Dong Yaxiu.

Pork price inflation picked up slightly to 21.1 percent year on year in June from 18.2 percent in May.

"We expect the rise in fruit prices to be short-lived and believe it could subside in coming months when supply increases, while pork prices could rise further due to a sharp decline in hog stock from the spread of African swine fever," said Lu Ting, chief China economist at Nomura.

Of the non-food categories, inflation of transportation and communication prices fell further to drop 1.9 percent year on year June from the 0.9 percent decline in May.

Transportation-related fuel price inflation dropped significantly, extending the 1.4 percent drop in May to tumble 6.5 percent last month, mainly on a continued moderation of oil price inflation (Brent oil price inflation fell 13.6 percent in June comparing with the 7.6 percent decline in May), according to Nomura.

Prices in the education, culture and entertainment sector, health care and housing rose by 2.4 percent, 2.5 percent and 1.6 percent respectively, with the combined impact on the headline CPI rising by about 0.84 percentage points, according to the bureau.

On a month-on-month basis, the headline CPI retreated slightly by 0.1 percent last month, compared with the flat figure in May.

Food prices edged down 0.3 percent in general. Among them, vegetable prices posted a 9.7 percent month-on-month slump as a large number of fresh vegetables were on the market, resulting in 0.25 percentage points in the headline CPI decline, according to Dong.

The price for fruits such as watermelons and peaches fell, while the price of apples and pears continued to rise rapidly. With heavy rain in some southern areas which affected the harvest and transport, pitaya and pineapple prices went up. Fresh fruit prices rose 5.1 percent in general to be at a high level, leading to 0.11 percentage points in the CPI drop.

Meanwhile, prices for gasoline and diesel fell by 3.5 percent and 3.7 percent respectively, affected by factors including the price adjustment of refined oil, together contributing to 0.07 percentage points in the overall CPI decline.

The Producer Price Index, which measures the cost of goods at the factory gate, remained unchanged year on year in June, comparing with the 0.6 percent growth in the previous month, due to "a high base and falling oil price inflation" according to Nomura.

In month-on-month terms, PPI retreated by 0.3 percent, reversing the 0.2 percent rise in May. 

Among upstream sectors, PPI inflation in the mining sector slowed to 4.5 percent year on year in June from 6.1 percent in May, while PPI in the raw materials sector fell further to drop 2.1 percent in June from the 0.6 percent fall in May and the processing sector was flat last month, cooling from the 0.5 percent increase in May.

PPI inflation broadly dropped among major industries, particularly in oil and natural gas extraction industries, which is consistent with the weaker oil price inflation in June, Lu said. PPI inflation also fell significantly in industries of fuel processing and ferrous metal processing.

Nomura maintained their forecast for a rise in headline CPI inflation this year to 2.5 percent from 2.1 percent in 2018 and believed it could even breach 3 percent in some months.

"We expect Beijing to undertake further easing or stimulus measures to bolster confidence and stabilize growth," Lu said.

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