China’s CPI Inflation Fastest Since 2012 With Peak in Sight
(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% last month from a year earlier, following a 3.8% gain in October, the National Bureau of Statistics data showed Tuesday. The median forecast was for a 4.3% increase. Factory prices fell 1.4% on year, slower than the 1.6% 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% 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%, suggesting domestic demand remains sluggish and the central bank can look through the supply shock.
The month-on-month rise in pork prices moderated, suggesting a peak in CPI inflation lies ahead, according to economists. Pork prices rose 3.8% in November from the previous month when it rose 20.1%. Some of the reasons of the moderation include higher pork imports alleviating supply shortage and a decrease in news reports of African swine fever, according to ING Bank’s report.
“We shouldn’t focus too much on the headline inflation figure. If we look at non-food inflation or core inflation, you’ll find the divergence between CPI and PPI is narrowing,” said Ning Zhang, an economist at UBS AG. “We are not faced with inflation pressure now, but deflation pressure, or pressure from weak inflation.” Zhang expects the CPI to peak at around January next year.
What Bloomberg’s Economists Say
With a recent reversal in pork prices -- the main driver of this year’s pickup in consumer prices -- we expect headline inflation to peak in January or February 2020.
-- David Qu, Bloomberg Economics
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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%,” 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.”
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