China’s inflation edges up in July on the back of food prices

China’s consumer inflation edged up in July, official data showed Monday, partly because of rising food prices from flood-related disruptions and as the country recovers from the coronavirus outbreak.

The consumer price index (CPI), a key gauge of retail inflation, had been pushed up over the past year by livestock prices and with the COVID-19 outbreak later hitting the supply chains.

The consumer price index (CPI) rose 2.7 per cent from a year earlier, its fastest pace in three months and compared with an expected 2.6 per cent increase and a 2.5 per cent rise in June.

Consumer inflation has been easing since January but ticked up again in recent months, with the CPI hitting 2.7 per cent last month, according to the National Bureau of Statistics (NBS), slightly better than forecasts in a news poll of analysts.

NBS senior statistician Dong Lijuan said Monday that food prices rose 13.2 per cent from a year ago, nudging the CPI up - with meat prices climbing 85.7 per cent.

“With the gradual recovery of catering services, demand for meat continued to increase,” said Dong, adding that this was accompanied by floods in many areas across the country.

Prices of vegetables rose also, affected by “unfavourable weather”, according to Dong.

Julian Evans-Pritchard of Capital Economics said “floods that have swept across China since late June appear to have disrupted supply chains and production in the Yangtze River Delta, where around half of China’s agricultural production takes place”.

But Nomura chief China economist Lu Ting told AFP he expects the CPI “to resume its downtrend soon in coming months”, with the temporary disruptions fading.

In a sign of the weakness outside the food sector, core inflation, which strips out food and energy costs, came in at a ten-year low of 0.5 per cent.

Meanwhile, the producer price index (PPI) fell 2.4 per cent from a year ago in July, better than the three per cent drop the month before.

The reading -- which measures the cost of goods at the factory gate -- was also better than the 2.5 per cent drop forecast by analysts.

Factory gate prices had been dragged by the pandemic fallout but started rising again in June, with analysts noting a recovery in industrial demand.

China is working to bounce back from a historic economic contraction in the first quarter caused by the virus, which had shut down most activity in the country.

Evans-Pritchard said: “The key driver continues to be the rebound in commodity prices, with the oil and metal processing sectors seeing the fastest rises in output price.”

“This is consistent with broader evidence of a stimulus-led recovery in construction and industrial activity,” he added.

He noted a further ramp-up in fiscal stimulus should continue to shore up infrastructure spending in the coming months, and support further recovery in economic activity and producer prices.

Meanwhile the China’s factory deflation eased in July, driven by a rise in global oil prices and as industrial activity climbed back towards pre-coronavirus levels, adding to signs of recovery in the world’s second-largest economy.

The producer price index (PPI) fell 2.4 per cent from a year earlier in July, the National Bureau of Statistics (NBS) said in a statement on Monday, compared with a 2.5 per cent decline tipped in a Reuters poll of analysts and a 3.0 per cent drop in June. Analysts say China’s industrial output is steadily returning to levels seen before the pandemic paralysed huge swathes of the economy, as pent-up demand, government stimulus and surprisingly resilient exports propel a recovery.

Iron ore futures prices in Dalian have rallied over 50 per cent so far this year while prices of steel bars used in construction have jumped 12 per cent.

Prices of petroleum and natural gas extraction led the headline gains, rising 12 per cent month-on-month, thanks to the continued rebound in global crude oil prices, according to Dong Lijuan, a senior statistician at the NBS. Coal mining and automobile manufacturing prices also turned positive in July.

“A further ramp-up in fiscal stimulus should continue to shore up infrastructure spending in the coming months, supporting a further recovery in economic activity and producer prices,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

However, PPI rose 0.4 per cent on a monthly basis, unchanged from the increase in June, pointing to strains on construction and production work caused by recent floods in southern China.

Agencies