Customers eat noodles inside a restaurant in Beijing, China. (Photographer: Qilai Shen/Bloomberg)

China's Consumer Inflation Picks Up, Driven by Food Price Gains

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China’s consumer inflation accelerated to the fastest pace in six months, driven by surging food prices, while producer prices escaped from near the deflation zone on a recovering economy.

  • The consumer price index rose 2.5% last month from a year earlier after gaining 2.3% in March, while factory prices gained 0.9%, according to the National Bureau of Statistics. That compares to estimates of 2.5% and 0.6% respectively.
China's Consumer Inflation Picks Up, Driven by Food Price Gains

Key Insights

  • Food prices were up 6.1%, with prices for fresh vegetables up 17.4% and pork prices jumping 14.4%, the most since mid-2016
  • China has slaughtered millions of pigs since August, when the viral African swine fever was first reported in China, pushing up pork prices
  • Domestic demand is also recovering amid months of stimulus, which supported demand for commodities from copper to crude oil
  • “The hog cycle could drive China’s headline CPI closer to 3 percent for the coming quarter but it will not constrain PBOC’s policy,” Robin Xing, chief China economist at Morgan Stanley, told Bloomberg Television. “On the PPI front we’ve seen some improvement on the rebound in the infrastructure demand.”

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  • PPI rose for the second month and exceeded all economists’ estimates, soothing fears that it will sink back to deflation, which hurts corporate profitability
  • “This is great news for China as it shows recovery is working, especially the PPI number," said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA in Hong Kong. “But the PBoC will clearly remain more cautious.”
  • Still, domestic consumer demand is not yet robust. Core CPI, a gauge excluding the more volatile food and energy prices, pulled back to 1.7% in April from 1.8% a month earlier
  • “Inflation pressure won’t be a big concern in China’s monetary policy this year” as long as the consumer price growth doesn’t hit the official target of 3%, said Yao Shaohua, an economist at ABCI Securities Co. Ltd in Hong Kong.

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