China inflation fastest since 2012 on surging pork prices

Pork prices surged 110 per cent from a year earlier as a deadly hog virus cut supply.
Pork prices surged 110 per cent from a year earlier as a deadly hog virus cut supply.PHOTO: REUTERS

BEIJING (BLOOMBERG) - China's consumer inflation accelerated to a seven-year high in November while producer prices extended their run of declines, complicating the central bank's efforts to support the economy.

The consumer price index rose 4.5 per cent last month from a year earlier, following a 3.8 per cent gain in October, the National Bureau of Statistics data showed on Tuesday (Dec 10). The median forecast was for a 4.3 per cent increase. Factory prices fell 1.4 per cent on year, slower than the 1.6 per cent drop in October while extending the run of negative readings to five.

Pork prices, a key element in the country's CPI basket, drove the gain, surging 110 per cent from a year earlier as a deadly hog virus cut supply. This pushed up the CPI by about 2.64 percentage points. Core inflation, which removes the more volatile food and energy prices, remained subdued at 1.4 per cent, suggesting domestic demand remains sluggish and the central bank can look through the supply shock.

"The gap between CPI and PPI inflation has been widening, which will squeeze the room for monetary policy," said Zhou Hao, senior economist at Commerzbank AG in Singapore. We are unlikely to see cuts in the reserve requirement ratio and interest rates before the Chinese New Year, Zhou said.

People's Bank of China Governor Yi Gang this month signaled a continuation of moderate, limited stimulus. Top Communist Party officials are expected to meet this month to set economic goals for 2020. Goldman Sachs Group Inc. economists said China will probably lower its growth goal to "around 6 per cent," which gives policy makers some leeway to respond to slower growth while still keeping the goal of doubling income this decade within reach.

"Factory deflation is a more concerning problem than the higher-than-expected CPI," said Betty Wang, senior economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. "There are no signs the manufacturing sector is recovering and the sluggishness is expected to stay for a while."