China consumer prices jump, adding to inflation concerns

In contrast to other major economies, consumer inflation in China has been relatively subdued this year. PHOTO: BLOOMBERG

BEIJING (BLOOMBERG) - China’s consumer inflation accelerated in July to the highest level in two years, largely due to surging pork costs, while weak consumer demand kept overall price pressures in check.

The consumer price index (CPI) rose 2.7 per cent last month from a year earlier as pork prices surged 20.2 per cent, National Bureau of Statistics data showed on Wednesday (Aug 10). The pickup in CPI was lower than the 2.9 per cent median estimate in a Bloomberg survey of economists and compares with 2.5 per cent growth in June.

Producer price inflation, meanwhile, slowed to 4.2 per cent in July from 6.1 per cent in June as commodity prices weakened.

In contrast to other major economies, consumer inflation in China has been relatively subdued this year as strict Covid-19 control policies and sporadic outbreaks curbed consumer and business spending. Those virus flare-ups - along with global headwinds and an ongoing real estate crisis - have kept China's economic recovery fragile, with factory activity unexpectedly contracting last month and property sales continuing to shrink.

Rising pork prices and an improving economic picture, though, are expected to push up CPI this year, and may test the government’s ability to deliver more stimulus. At the same time, core CPI, which excludes the volatile prices of food and energy, remains weak at 0.8 per cent in July, suggesting very little demand pressure in the economy to warrant concern from policymakers.

“Inflation will likely rise past 3 per cent in the next two months, due to a low base and the lift from pork prices,” said Mr Bruce Pang, head of research and chief economist at Jones Lang LaSalle. “But core inflation will likely stay benign as domestic demand remains weak. This won’t cause much restriction to the monetary policy.”

July’s inflation uptick was largely driven by gains in the price of pork, fresh vegetables and other foods, along with seasonal factors, the NBS said in an accompanying statement, citing senior statistician Dong Lijuan. Overall food prices rose 6.3 per cent in July from a year ago, with pork prices, a key element in China’s CPI basket, posting the first year-on-year increase since September 2020. 

Analysts at China International Capital Corp said ahead of the CPI release that consumer inflation could breach the government’s target outlined earlier this year of about 3 per cent. Even so, policymakers will likely tolerate higher inflation for the sake of stronger economic growth, the analysts said.

Chinese authorities have already signalled a willingness to let CPI creep somewhat higher. 

“If we can keep the unemployment rate below 5.5 per cent and the CPI rise stays under 3.5 per cent for the whole year, we can live with a growth rate that is slightly higher or lower than the target, not too low of course,” Premier Li Keqiang said at an event with business leaders hosted by the World Economic Forum last month.

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