Consumer inflation picks up post COVID-19

Huang Yixuan
The domestic epidemic situation was generally stable in June with businesses resuming work as authorities implemented measures to ensure market supply and stable prices. 
Huang Yixuan

China's consumer inflation picked up in June as work and production resumed after the COVID-19 outbreak, while factory-gate inflation fell year on year.

The Consumer Price Index, a main gauge of inflation, rose by 2.5 percent last month from a year earlier, 0.1 percentage point faster than May, the National Bureau of Statistics said on Thursday.

The domestic epidemic situation was generally stable in June, with businesses resuming work, production and operation in an orderly manner. Authorities implemented policies and measures to ensure market supply and stable prices, said Dong Lijuan, a senior statistician at the bureau. 

Food price inflation increased to 11.1 percent year on year in June from 10.6 percent in May. The rise in food price inflation more than offset the moderation in non-food price inflation.

Pork price inflation was 81.6 percent year on year in June, largely unchanged from 81.7 percent in May, "as sequentially higher pork prices amid a gradual resumption of catering businesses largely offset the unfavourable base effects," according to Nomura.

Beef and lamb price inflation also remained generally flat compared with May, 18.5 percent and 10.9 percent, respectively, year on year.

Vegetable price inflation, meanwhile, rose by 4.2 percent year on year in June, reversing the 8.5 percent decline in May, partly driven by flooding in South China which severely impacted vegetable output and deliveries. The Xinfadi wholesale agricultural products market in Beijing became the epicenter of the latest COVID-19 flare-up, also resulting in a short-term shortage of vegetables in some areas, said Dong.

Non-food price inflation, meanwhile, remained subdued at 0.3 percent year on year in June, down 0.1 percentage point from May.

Transport and communication price inflation edged down by 4.6 percent year on year in June compared with May’s decline of 5.1 percent, mainly led by transport-related fuel price inflation in line with the rise in global oil price inflation. 

That said, cost inflation for transport facilities moderated to post a 2.3 percent drop year on year in June from the 1.9 percent fall in May.

On a month-on-month basis, the headline CPI extended the decline by 0.1 percent last month, compared with the drop of 0.8 percent in May.

Food prices went up 0.2 percent month on month in general, compared with the 3.5 percent fall in the previous month.

Pork price inflation jumped to 3.6 percent in June, reversing the 8.1 percent decline in May, in line with the outturn in June 2019 (3.6 percent).

 "As hog and breeding sow stocks have contracted by around 25 percent since the initial outbreak of African swine fever in August 2018, the gradual recovery of catering businesses has boosted pork demand, and the recent heavy rainfalls and resultant flooding in South China may constrain pig farming and hog delivery to a degree," said Lu Ting, chief China economist at Nomura.

The Producer Price Index, which measures the cost of goods at the factory gate, fell 3 percent year on year in June, compared with a 3.7 percent drop in May, driven by sequentially higher prices of oil and other major raw materials.

In month-on-month terms, PPI inflation rebounded to 0.4 percent in June, compared with the decline of 0.4 percent in May, as global commodity prices picked up, domestic manufacturing recovered steadily, and market demand continued to improve, according to NBS's Dong. 

Looking forward, Nomura expected CPI inflation to inch up to 2.7 percent year on year in July "as the supply shock of the recent flooding in South China may more than offset the high base in July 2019," Lu said. 

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