Mounting inflationary pressure in China may get a boost from rising prices for one of the country’s main dietary staples: pork.
Food prices are one of the biggest factors in consumer inflation, and one of the main components is pork. The meat accounts for almost 3% of the consumer price index (CPI), according to an estimate from Citic Securities Co.
The government’s statistics bureau doesn’t disclose weights for components in the CPI basket. Pork prices have collapsed on cheaper corn, the main feed for hogs, and greater production. Prices soared by 33.6% year on year in May 2016 – the most in more than four years – but have been falling this year. However, losses have been narrowing over the past four months, with fresh data showing a 10.1% drop in October.
Consumer Price Increases
That's happening as economists project faster consumer price increases this year and next. Faster price gains may also be welcomed by policymakers working to rein in financial risk as they help inflate away debt obligations.
"While inflation is still in the government’s comfort zone, pressures are broadening," said Lou Feng, an analyst at the Chinese Academy of Social Sciences, a government think tank in Beijing. Shoppers aren't seeing much inflation, thanks to food prices falling for the past nine months.
The consumer price index rose by 1.9% year on year last month – the most since January, but still short of the government's 3% target. Economists surveyed by Bloomberg forecast that it will pick up to 2% in the fourth quarter and 2.3% in the first three months of next year, but pressure is building. A core inflation gauge that strips out food and energy was steady last month, matching a six-year high of 2.3%.
Falling Prices
Reduced price supports for agriculture led to falling prices for various kinds of food, from grains to pork, said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing. Corn prices fell after authorities scrapped a long-time price support, which had helped hold down pork prices because it’s the main feed for hogs.
“The low-base effect means consumer prices, which are heavily weighted toward food, especially pork, are set to recover," Wen said.
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