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China's May CPI Moderates to 2.4%

Date: 2020-06-15
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China's consumer inflation eased in May on retreating food prices while factory prices continued to drop, official data showed yesterday.

The Consumer Price Index, a main gauge of inflation, rose by a weaker-than-expected 2.4 percent last month from a year earlier, 0.9 percentage points slower than April, the National Bureau of Statistics said yesterday.

On a monthly basis, consumer prices went down 0.8 percent.

The domestic epidemic situation was generally stable in May and businesses have resumed in an orderly manner. The market supply and demand situation has been further improved, said Dong Lijuan, a senior statistician at the bureau.

Food prices, which account for nearly one-third of weighting in China’s CPI, dropped 3.5 percent last month, mainly led by pork price inflation falling 8.1 percent from April.

Lu Ting, chief China economist at Nomura, said: “Despite the fall in pork prices in the previous months, given hog and breeding sow stocks have contracted by around 30 percent since the initial outbreak of African swine fever in August 2018, so we continue to expect hog and pork supply shortages in coming months, which, together with the gradual recovery of catering businesses, may lead to a near-term stabilization and even a slight rebound in hog and pork prices.”

Vegetable prices fell 12.5 percent from April over rising supplies.

Compared with the same period last year, food prices remained the main driver of consumer inflation in May, while its growth rate tapered from April to 10.6 percent.

Non-food price inflation, meanwhile, remained subdued at 0.4 percent year on year in May, unchanged from April.

Transportation and communication price inflation edged down by 5.1 percent year on year in May compared with April’s decline of 4.9 percent. It is mainly led by transportation-related fuel price inflation, which fell further by 22 percent year on year from the same period’s drop of 20.5 percent.

“This contradicted the rebound in global oil price inflation as global oil prices have been below the floor prices of US$40 per barrel set by the National Development and Reform Commission since mid-March, and their recent rebound may not be fully translated into domestic retail prices of oil products,” Lu said.

In the first five months, CPI went up 4.1 percent year on year on average.

Yesterday’s data also showed China’s producer price index, which measures inflation at the factory gates, fell 3.7 percent year on year last month compared with a 3.1 percent drop in April, despite a rebound in prices of global oil and other major raw materials.

Factory prices of production materials dropped 5.1 percent year on year in May, dragging down the overall PPI by 3.79 percentage points.

The weaker year-on-year PPI inflation print was largely due to a high base of comparison from last May, without which PPI inflation would have posted a decline of 3.2 percent year on year, according to NBS estimates.

On month-on-month, PPI inflation dropped by 0.4 percent in May, compared with the decline of 1.3 percent in April.

Citing the narrowing trend in month-on-month PPI reading, NBS senior statistician Dong Lijuan said industrial production further rebounded last month with an improvement in market demand.

Wen Bin, chief analyst at China Minsheng Bank, said the May PPI fell more than expected due to the impact of the epidemic on domestic enterprises, as well as the low international oil prices that dampened prices of production materials.

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