China to keep inflation target around 3 per cent in 2020 despite surge in pork prices, sources say
- China’s consumer price inflation (CPI) rose to a near eight-year high of 4.5 per cent in November, as pork prices doubled due to the outbreak of African swine fever
- The 2020 target will be officially unveiled in early March having been endorsed by top leaders at the annual closed-door Central Economic Work Conference last month
China has decided to keep its inflation target unchanged this year at around 3 per cent, sources say, suggesting policymakers will continue to roll out economic stimulus gradually and avoid more aggressive measures.
But policy sources told Reuters the government expects surging food prices to start easing in the second half of the year, as the government takes steps to address pork shortages.
“The target will still be around 3 per cent”, one of the policy sources said. “We cannot rule out the possibility that inflation may break 5 per cent in the coming months but that could be short-lived”.
The State Council Information Office and the National Development and Reform Commission – the state planner, did not immediately respond to Reuters’ requests for comment.
China has kept its inflation target at around 3 per cent since 2015.
The diverging price trends have complicated policymakers’ efforts to revive activity without risking overstimulating the economy.
While Beijing has rolled out a series of support measures in the last two years, mainly in the form of higher infrastructure spending and tax cuts, leaders have pledged they will not embark on massive stimulus like seen during the 2008-09 global financial crisis, which created a mountain of debt that is still weighing on the economy.
While food prices have spiked, with pork more than doubling in price over the past year, there has been little sign of a pickup in inflation across the broader economy, suggesting demand remains sluggish. Core inflation – which excludes food and energy prices – has stayed largely subdued.
“Currently, the CPI rise is mainly due to pork prices – this is a structural, not a broad-spread price rise. Pork prices could start to fall in the second half,” said a second source.
Still, the government may face a tough job in keeping inflation below 3 per cent this year, policy insiders said.
Rising inflation expectations could reinforce the government’s cautious approach to further monetary policy easing, but Beijing’s supportive stance remains intact, sources said.
Analysts expect at least one more RRR cut this year.
The People’s Bank of China has also begun lowering key interest rates in recent months, with more expected possibly before the end of this month, but the cuts have been far smaller than substantial easing in the United States and many other economies over the past year.