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October 16, 2019

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September CPI soars on rising pork prices

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 yesterday.

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.

Due to a shortage of supply, prices of the staple meat pork were one of the main drivers of the CPI uptick, while the growth rate narrowed on a month-on-month basis to 19.7 percent in September, said NBS senior statistician Shen Yun.

Although pork may continue to drive up food prices and the CPI in the fourth quarter, stabilizing measures issued by the government will eventually render supply-demand balance in the market, according to Lian Ping, chief economist at the Bank of Communications.

China has repeatedly pledged to spur hog production and stabilize pork supply. A total of 30,000 tons of pork was released from the national stockpile last month after an outbreak of African swine fever dented the staple meat’s market supply.

The country imported 1.33 million tons of pork in the first nine months, up 43.6 percent year on year, as another way to shore up supply.

A slew of work plans was also released last month on subsidizing hog farm expansion and renovation, raising the sum insured on hogs and exempting toll fees for vehicles transporting pork.

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.

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.

Keeping consumer prices stable is high on the government agenda, as the State Council urged efforts in an executive meeting on September 26 to secure the supply of basic necessities, track and analyze the trend of commodity prices in the international market, and strengthen market supervision and price monitoring.

“The CPI uptick we’re experiencing now indicates short-term structural inflation driven by pork prices that requires no monetary policy-level adjustments,” said Zhang Jun, an analyst at Morgan Stanley Huaxin Securities.

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,” Nomura said.

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 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.”


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