Inflation marches higher on smaller food deflation
Prices in China were generally stable to slightly lower in May, as the economy remains trapped in a deep well of excess supply and softening prices
Prices in China were generally stable to slightly lower in May, as the economy remains trapped in a deep well inundated with excess supply and softening prices, awaiting a rescue from the promises of President Xi’s supply-side reforms.
Producers of upstream raw materials took another major hit following significant price corrections in the ferrous market. The agricultural economy also saw prices of its products slipping for the fourth straight month.
Consumer inflation came in at 1.5% from a year earlier, in line with analysts’ expectations and slightly higher than April’s 1.2% reading, the National Bureau of Statistics said on Friday.
Non-food inflation, at 2.3%, was little changed in the latest poll. Hence it is easy to realize May’s pick up in headline CPI was driven solely by a smaller food deflation for the month.
Prices for the edibles fell just 1.6% from a year earlier, versus their massive 3.5% drop in April, thanks to a comparably larger base in May of 2016. Still, the woes for farmers linger, with the month-on-month price for food items falling another 0.7% following April’s 0.6% slump.
Vegetables, eggs, and pork prices dropped 6.2%, 3.4%, and 2.9%, respectively, during the month due to an abundance of supply that outstripped market demand, the government explained.
On a month-on-month basis, the CPI fell 0.1% during May following the 0.1% increase in April.
Sun Jiwen, a spokesman of China’s Ministry of Commerce, said the country expected to see a continued drop in pork and vegetable prices due to oversupplies, while the price of eggs will gradually stabilize in the coming months.
The scenario for people working in the tertiary industry are decisively better, as seen in the 2.9% rise in services inflation. In particular, healthcare prices have risen to a 10-year high, up 5.9%, after 5.7% in April.
Beijing has set a 3% inflation target this year.
Meanwhile, China’s producer level inflation moderated for the third straight month, coming in at 5.5% versus an estimated 5.7% in a Bloomberg survey. However, the 0.9 percentage point slide in May was somewhat less than the previous month’s 1.2 percentage point drop.
Similarly, selling prices of factory goods fell 0.3% on the month, narrowing from April’s 0.4% dip.
Some 20 of the 40 industrial sectors surveyed said prices slipped during the month. That’s six more sectors suffering declining product prices than during April. Iron-ore mining, steelmaking and chemical manufacturing saw their PPI receding 4.1%, 1.3% and 1.0% in May, respectively.
Capital Economics said in a report prior to the data release that producer prices “should continue to wane as policy tightening weighs on economic activity” in the future.