MNI Analysis: China CPI Eases on Falling Food Price; PPI Rises

--Smaller Month-to-Month Price Drops

--Two Fuel Price Hikes Led PPI Higher Y/y

     BEIJING (MNI) - China's April inflation slowed for a second month due to

slower growth of food prices, according to data released Thursday by the

National Bureau of Statistics.

     Consumer price index (CPI) last month rose 1.8% over a year ago, compared

with 2.1% in March and 2.9% in February. That is lower than 1.9% median in a

survey of 19 economists by MNI.

     Food prices, the biggest contributor of the drop, grew 0.7% y/y from 2.1%

in March. Pork prices plunged 16.1% y/y partly on less demand. Prices of

non-food items rose 0.2%. There was slowing price gains in a range of products:

healthcare cost gained 5.2% y/y in April relative to 5.7% gain in March, while

prices of education, entertainment, necessities and cost of living all eased,

the data show.

     --SMALLER M/M DROP

     On a monthly basis, April consumer prices fell 0.2% from March, slower than

1.1% in March from February. Food prices lost 1.9% m/m, moderating from the 4.2%

drop seen in March. Price of vegetables was down 5.5% m/m as warmer weather

boosted supply. Meat and egg prices fell 4.1% and 2.8%, respectively. Prices of

non-food items fell 0.2% m/m, compared with a 0.4% m/m drop in March. As

expected by MNI in its Five Things report published on Wednesday, housing costs

rose at a slower pace due to government curbs on transaction. Today's data

showed a gain of 0.2% m/m in April, down from 0.6% in March.

     PPI grew faster at 3.4% y/y in April, snapping a five-month deceleration.

It was lower than the 3.5% projected by the MNI survey. The indicator gained

3.1% y/y in March. Higher gasoline price boosted PPI growth, helped by two fuel

price hikes by regulators.

     As m/m PPI dropped 0.2%, same as that in March, y/y PPI growth was partly

due to a lower base in the period of the previous year.

     PPI eased m/m on increased supplies of industrial goods and raw materials

-- China lifted restrictions on industrial production imposed in winter to curb

pollution. NBS data showed m/m drop in material prices: -2.9% for ferrous-metal

mining, -1.8% for ferrous-metal smelting and flattening, -1.2% for fuel gas, and

-1% for non-ferrous metal mining.

     --TRADE ROW

     Looking ahead, two factors may cause China's CPI and PPI to gain momentum.

As the trade row with the U.S. remains deadlocked, China's tariff hikes on

American agricultural products such as soybeans may lead to higher food prices.

President Donald Trump's decision to withdraw from the Iran nuclear agreement

may boost crude oil prices, lifting China's overall energy costs.

     The relatively benign inflation still left plenty of leeway for the central

bank to tweak China's monetary policies. The benchmark interest rates are not

expected to rise in the short term.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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