Surging pork prices push Chinese inflation higher

Summary:

• Chinese headline price growth accelerates more than expected
• Food prices remain a prime reason why prices in the Chinese economy keep climbing at a faster clip
• PBoC is unlikely to step in to tame the ongoing price increase as core inflation remains rather lacklustre

Headline price growth in the world’s second largest economy accelerated in September to 3% from 2.8% YoY, slightly exceeding expectations suggesting a bounce to 2.9%. As it was the case in the previous months, food prices were one of the largest contributors to the overall increase surging as much as 11.2% in annual terms, compared to a 10% YoY gain seen in August. This increase is mainly tied to surging pork prices as well as other related meats. In the prior month pork prices soared 69.3% while beef prices picked up 18.8%, compared to the corresponding period last year. 

Either way, we doubt it could encourage the PBoC to step in to attempt to tame this price increase as it is being steered by supply factors. This notion is perfectly pictured when we take a closer look at core prices rising merely 1.5% YoY last month. Moreover, core prices (excluding food and energy) have begun stumbling at the same time when headline inflation has skyrocketed. On top of that, the price of service items decelerated to 1.3% YoY, reaching its slowest pace since February 2015. It also underlines the lack of building any domestic price pressures. Last but not least, PPI decelerated in September to -1.2% from -0.8% signalling prices of related downstream industries could see a protracted weakness.

Although headline inflation in China has picked up notably, core prices have moved in the opposite direction. Source: Bloomberg