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Pork prices pose a meaty inflation problem
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HOT pork prices are stirring up gripes around China’s dinner tables as well as concerns that the trend, if it continues, might derail the country’s easing monetary policy stance.
In July, pork prices, up 16.7 percent year on year, were the main driver of food inflation and contributed half a percentage point to the 1.6 percent rise in the Consumer Price Index, which itself was a nine-month high.
Pork is China’s staple meat and accounts for almost 3 percent of the consumer inflation basket. Its price is subject to a boom-and-bust cycle and has been volatile in recent years.
This year, prices have been driven up as a result of a decline in the number of pigs being bred. Low prices last year and the rising price of feed left farmers less willing to raise pigs.
The latest price surge is bringing back memories of the 2011 inflation crisis, when pork prices pushed inflation to 6.5 percent, its highest level in more than three years. A return of pork price inflation could bring the country’s monetary easing into abeyance and undermine current efforts to support the slowing economy, but such concerns might be overstated.
China’s general inflation has been tame this year. In the first half of the year, the CPI, a main gauge of inflation, rose only 1.3 percent year on year.
The National Development and Reform Commission, China’s top economic planner, said yesterday that inflation is likely to pick up in the second half but will remain at a low level.
The rising price of pork will continue to push up China’s inflation rate over the coming months, but there is no strong sign of inflation and it is unlikely to change China’s easing monetary policy stance, analysts said.
According to a report by HSBC, the rising pork price alone should not prevent monetary easing, as its effect on headline inflation will be partially offset by falling food, energy and housing costs, as well as subdued domestic demand.
Despite rising consumer inflation, producer prices in July fell to their lowest level since late 2009 and have been sliding for more than three years.
Exports slumped last month and imports remained weak, adding pressure for stimulation.
HSBC said it expects the central bank to cut interest rates by a quarter point and banks’ reserve requirement ratio by a whole point in the third quarter.
Joyce Liu, analyst with China International Capital Corp, said she believes that the government will maintain its loose monetary and fiscal policy.
Consumer inflation is likely to reach 2.3 percent by the end of the year, she said.
China has set a target to keep full-year inflation around 3 percent.
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