Pork prices push up inflation
China's consumer inflation continued to expand in September amid surging pork prices, while factory-gate inflation declined further year on year.
The Consumer Price Index, a main gauge of inflation, jumped 3 percent last month from a year earlier, 0.2 percentage points faster than August, the National Bureau of Statistics said on Tuesday.
The higher headline CPI figure was mainly led by skyrocketing pork prices, which jumped 69.3 percent in September year on year, 22.6 percentage points faster than the previous month.
"Given the spread of African swine fever, the sharp contraction of hog stocks, declining pork production and as there is limited scope to increase hog and pork supply, we maintain our view that pork prices will likely continue to trend higher in coming quarters," said Lu Ting, Nomura’s chief China economist.
Food prices soared 11.2 percent year on year, 1.2 percentage points higher than the previous month, leading to a 2.21-point rise in the overall CPI, according to the bureau.
Prices for beef, mutton, chicken, duck and eggs all increased between 9.4 percent and 18.8 percent year on year, while fresh fruit prices rose 7.7 percent which was 16.3 percentage points slower than the previous month. These six contributed 0.49 percent to the headline CPI growth.
Fresh vegetable prices, however, slumped by 11.8 percent, dragging the overall CPI growth down 0.33 percentage points.
Non-food prices, meanwhile, grew 1 percent, 0.1 percentage points slower than August, contributing 0.82 percentage points to the headline CPI growth.
Prices in the education, culture and entertainment sector, health care and clothing rose by 1.7 percent, 2.2 percent and 1.6 percent, respectively, while transport and communication prices fell 2.9 percent year on year.
On a month-on-month basis, the headline CPI edged up by 0.9 percent last month, up 0.2 percentage points from the pace in August.
Food prices surged by 3.5 percent in general, compared with the 3.2 percent rise in the previous month.
The supply of pork continued to tighten, with prices soaring 19.7 percent from a month earlier, but was 3.4 percentage points slower than the rise in August, contributing 0.65 percentage points to the overall month-on-month CPI rise, according to Shen Yun, the statistics bureau’s senior statistician.
Due to the increasing demand and the effect of substitution in consumption amid the cooler weather, prices for beef, mutton, chicken, duck and eggs saw increases between 4 percent and 7.7 percent month on month, Shen said.
Vegetable prices posted a 2.4 percent month-on-month decline on account of abundant supply, Shen said, while fruit prices dropped by 7.6 percent as a large number of fresh fruits such as apples and pears were on the market.
The Producer Price Index, which measures the cost of goods at the factory gate, fell 1.2 percent year on year in September, compared with a 0.8 percent drop in August, which was "due mainly to falling oil and raw materials (especially steel) prices, as well as a high base last year" according to Nomura.
Due to falling oil price inflation, PPI inflation weakened among major oil-related industries in September, particularly in the oil and natural gas extraction and fuel processing industries. For the ferrous metal-processing industry, PPI inflation dropped further to post a 5.8 percent decline year on year in September compared with the 3.1 percent drop in August.
In month-on-month terms, the PPI rebounded by 0.1 percent, reversing the 0.1 percent dip in the previous month.
Nomura expects headline CPI inflation to remain above 3 percent over the coming months on higher pork prices and as unfavorable base effects for vegetable prices fade.
"By contrast, PPI inflation could turn more negative on weakening domestic demand, falling energy and raw material prices and the value-added tax cut that became effective in April this year," Lu said.
In terms of expectation for future policies, the Australia and New Zealand Banking Group’s Xing Zhaopeng, China markets economist, and Raymond Yeung, chief China economist, said: "We believe the focus of China's monetary policy will tilt toward managing the risks of an industrial recession.”
Xing said: ”In our view, the PPI serves as a reliable gauge of China's business cycle. The central bank will rather pledge more support to small and medium enterprises and other segments that would have a larger impact on jobs and employment. Therefore, targeted cuts in the reserve requirement ratio and targeted medium-term lending facility will still be the preferred tools.”