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January 10, 2020

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At 2.9%, China barely misses CPI target

China’s consumer price index, a main gauge of inflation, rose 2.9 percent year on year in 2019, within government target of 3 percent, and the producer price index, which measures costs for goods at the factory gate, dropped 0.3 percent year on year in 2019, official data showed yesterday.

The CPI jumped 4.5 percent year on year last month, unchanged from that in November, which was the highest so far last year.

The hike was mainly driven by food prices, which soared 17.4 percent year on year last month, contributing 3.43 percentage points to the increase in December.

But the price of pork, eggs and other kinds of protein including beef, mutton and poultry saw slower growth last month.

Lu Ting, chief economist at Nomura, said, “China’s CPI inflation stabilized in December, mainly due to falling price inflation for pork to 97 percent year on year in December from 110.2 percent in November and eggs to 6.2 percent from 10.1 percent, which offset higher vegetable and non-food price inflation.”

As government measures to restore hog production started to take effect, the soaring trend of pork prices affected by the African swine fever and cyclical factors has softened in the past month.

Some 130,000 tons of frozen pork has been released since December 12, 2019, data from the National Development and Reform Commission showed.

The government yesterday started to release another 20,000 tons of frozen pork from central reserves into the market.

Local governments have also stepped up with over 90,000 tons of pork on its way into the market.

Prices to soften in 2nd half

OCBC Bank’s head of China research Tommy Xie said he expects prices to soften slightly in 2020, although pork prices are likely to remain elevated for the first half of the year.

Fresh vegetables and fruit rose 10.6 percent and 0.6 percent month on month respectively, due to increased production, storage and transport costs because of the cold and widespread snow. Year on year, fruit prices slumped 8 percent while vegetable prices surged 10.8 percent.

Non-food prices gained 1.3 percent last month, faster than the 1 percent growth in November, the bureau said.

Prices in healthcare, the education, culture and entertainment sector, and clothing rose by 2.1 percent, 1.8 percent and 0.8 percent, respectively.

Transportation and communication price inflation declined 0.7 percent year on year in December, compared with the 2.8 percent fall in November, mainly led by transport-related fuel price inflation, which surged 0.6 percent year on year.

The CPI in urban and rural areas posted a year-on-year growth of 4.2 percent and 5.3 percent, respectively.

China’s producer price index, which measures costs for goods at the factory gate, dropped 0.3 percent year on year in 2019,

In December, the PPI dropped 0.5 percent year on year, shrinking from the 1.4 percent decline in November.

Factory prices of capital goods decreased 1.2 percent year on year in December, shrinking from the 2.5 percent declining in November.

The slower pace of decline in producer prices signals a modest recovery in manufacturing activity. The milder price deflation was partly supported by a recovery in petroleum, coal and other fuel processing industries, the statistics bureau said.


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