China inflation edges up on the back of food prices

GREG BAKER
·2-min read
Rising food prices helped drive China's consumer inflation to 2.7 percent in July, with pork prices soaring 86 percent
Rising food prices helped drive China's consumer inflation to 2.7 percent in July, with pork prices soaring 86 percent

China's consumer inflation edged up in July, official data showed Monday, partly because of rising food prices from flood-related disruptions and as the country recovers from the coronavirus outbreak.

The consumer price index (CPI), a key gauge of retail inflation, had been pushed up over the past year by livestock prices after China's pig herds were ravaged by African swine fever, with the COVID-19 outbreak later hitting supply chains.

Consumer inflation has been easing since January but ticked up again in recent months, with the CPI hitting 2.7 percent last month, according to the National Bureau of Statistics (NBS), slightly better than forecasts in a Bloomberg News poll of analysts.

NBS senior statistician Dong Lijuan said Monday that food prices rose 13.2 percent from a year ago, nudging the CPI up -- with pork prices climbing 85.7 percent.

"With the gradual recovery of catering services, demand for pork continued to increase," said Dong, adding that this was accompanied by floods in many areas across the country, which hit the transportation of live pigs.

Prices of vegetables rose also, affected by "unfavourable weather", according to Dong.

Julian Evans-Pritchard of Capital Economics said "floods that have swept across China since late June appear to have disrupted supply chains and production in the Yangtze River Delta, where around half of China’s agricultural production takes place".

But Nomura chief China economist Lu Ting told AFP he expects the CPI "to resume its downtrend soon in coming months", with the temporary disruptions fading.

In a sign of the weakness outside the food sector, core inflation, which strips out food and energy costs, came in at a ten-year low of 0.5 percent.

Meanwhile, the producer price index (PPI) fell 2.4 percent from a year ago in July, better than the three percent drop the month before.

The reading -- which measures the cost of goods at the factory gate -- was also better than the 2.5 percent drop forecast by analysts.

Factory gate prices had been dragged by the pandemic fallout but started rising again in June, with analysts noting a recovery in industrial demand.

China is working to bounce back from a historic economic contraction in the first quarter caused by the virus, which had shut down most activity in the country.

Evans-Pritchard said: "The key driver continues to be the rebound in commodity prices, with the oil and metal processing sectors seeing the fastest rises in output price." 

"This is consistent with broader evidence of a stimulus-led recovery in construction and industrial activity," he added.

He noted a further ramp-up in fiscal stimulus should continue to shore up infrastructure spending in the coming months, and support further recovery in economic activity and producer prices.

bys/rox/dan