Caixin
Jul 09, 2020 07:23 PM
ECONOMY

Update: Rising Food Prices Weigh on Consumer Inflation

China’s consumer inflation moved up slightly last month as floods in southern China and a new wave of Covid-19 infections in Beijing caused vegetable prices to rise due to short supply, an official statement (link in Chinese) said Thursday.

At the same time, downward pressure on factory-gate prices eased as domestic demand recovered and global commodity prices picked up.

The consumer price index (CPI), which measures the prices of a basket of consumer goods and services, rose 2.5% year-on-year last month, up slightly from a 2.4% gain in May and ending four consecutive months of decline, data (link in Chinese) from the National Bureau of Statistics showed.

CPI CHART-1

The reading was slightly below the median estimate of 2.6% growth in a Caixin survey (link in Chinese) of economists.

Food prices exerted a big impact on consumer inflation. The price of fresh vegetables rose 4.2% year-on-year in June, compared with an 8.5% drop the previous month.

Pork prices, one of the key drivers of inflation over the past year, rose 81.6% year-on-year in June, similar to an 81.7% rise the previous month.

“Sequentially higher pork prices amid a gradual resumption of catering businesses largely offset the unfavorable base effects,” economists at Nomura International (Hong Kong) Ltd. said in a note. On a month-on-month basis, pork prices rose 3.6% in June, compared with a drop of 8.1% in May.

The core CPI — which excludes more volatile food and energy prices and may better reflect long-term inflation trends — rose 0.9% year-on-year last month, down from 1.1% growth in May.

The Nomura economists estimated that CPI growth would creep up to 2.7% in July because the supply shock of recent floods may offset the high base in July 2019. But they said it would ease in the second half of 2020 “due mainly to the higher base from surging pork prices in H2 2019.”

The producer price index (PPI), which measures changes in prices of goods circulated among manufacturers and mining companies, fell 3% (link in Chinese) year-on-year last month, milder than a 3.7% drop in May and slightly lower than the median estimate of a 3.1% decline in the Caixin survey.

As global crude oil prices rose, factory-gate prices in oil-related industries, including oil and gas mining and chemical product manufacturing, saw milder drops year-on-year in June, according to the official statement.

On a month-on-month basis, the PPI also showed an improvement, rising 0.4% in June compared with a 0.4% drop in May.

“Producer prices rose last month for the first time since the outbreak of Covid-19, adding to evidence that industrial demand had mostly recovered by the end of Q2,” economists with London-based Capital Economics Ltd. wrote in a note.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com)

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