China’s pork crisis sends consumer inflation rising to the brink of Beijing’s limit, highest level in six years
- September’s consumer price index rose to 3.0 per cent, largely due to soaring pork prices
- China’s producer price index, a measure of the prices manufacturers charge at the factory gate, also fell further into deflation at minus 1.2 per cent
China’s pork crisis sent prices spiralling to their highest reading since November 2013 as consumer inflation reached 3.0 per cent in September, according to official government data released on Tuesday.
The world’s most populous nation has been ravaged by an outbreak of African swine fever that added 1.65 percentage points to its consumer inflation last month.
The 3.0 per cent mark is the upper limit of Beijing’s consumer price index (CPI) target for 2019, placing more pressure on the government to source new supplies of pork, with African swine fever predicted to wipe out half the pig population by the end of 2019.
September’s producer price index (PPI), which was also released on Tuesday by the National Bureau of Statistics (NBS), sunk further to minus 1.2 per cent from a year earlier. This was again worse than August’s reading of minus 0.8 per cent but in line with analysts expectation for the price charged by manufacturers at the factory gates.
The deflation in producer prices showcases the pressure faced by manufacturers in the world’s second-largest economy, with the trade war with the United States now in its 15th month.
“Looking ahead, consumer price inflation should continue to accelerate in the coming months as supply disruptions continue to push up pork prices and as the drag from lower oil prices eases. But rapid food price inflation is unlikely to be a barrier to monetary easing, and we continue to anticipate further loosening in the next few quarters as demand-side pressures remain muted and factory-gate deflation deepens,” said Martin Lynge Rasmussen, China Economist at Capital Economics.
Overall, the price of pork has jumped 69.3 per cent year on year and 19.7 per cent since August due to the spread of African swine fever.
According to the NBS, clothing prices rose 1.8 per cent last month while rent increased 1.4 per cent, although the cost of transport and communication dropped 2.9 per cent.
Given the volatility of energy prices and seasonal food prices which make up the CPI basket, policymakers often focus on core inflation, although this indicator expanded from 1.1 per cent in August to 1.5 per cent in September, highlighting underlying inflation issues.
Raymond Yeung, chief Greater China economist of ANZ Bank, said PPI, rather than CPI, is a better indicator for the state of the economy and deserves special attention from policymakers.
“Technically, it has already entered an industrial recession,” he warned. “Both overseas and domestic demand are weak. Especially, fiscal support and the approval of projects seems not enough so far.”
Despite this, Yeung said there could be more targeted policy support for affected businesses, including a cut of the required reserve ratio as well as fiscal solutions.
Industrial profits of sizeable enterprises also dropped 2 per cent in August.
The official manufacturing purchasing managers’ index rebounded 0.3 points to 49.8 in September, although it remained in contractionary territory for the third consecutive month.