MNI Analysis: China Inflation Cools As Reform Slows Growth

--Inflation Eased Also Partly on Waning Effect of Chinese New Year 

--PPI Slowed More Than Expected on Less Economic Momentum

     BEIJING (MNI) - China's growth of consumer and factory-gate prices softened

in March as the government's drive for structural reform slows growth. 

     Consumer price index was 2.1% in March over a year ago, according to data

released by the National Bureau of Statistics on Wednesday. That is sharply

lower than 2.6% projected in an MNI survey, and down from 2.9% in February. On a

monthly basis, CPI also slowed for the first time in nine months, dropping 1.1%

from 1.2% in February.

     The easing of inflation may also be due to the ending of Chinese New Year

celebrations in February, when food prices typically surged and prices for

travel services such as flights and train fares spiked. 

     A sharp 8.4% m/m drop in pork prices, which constitute a significant

portion of China's CPI formula, contributed to the slower CPI. Other food

categories, such as vegetables, dropped 14.8% over the previous month as warmer

weather boosted supply, and prices of eggs, seafood and fruit dropped 7.9%, 3.2%

and 2.4% m/m. 

     --PORK PRICES

     The decline in pork price was due to the industry's higher productivity on

improved technique and additional supply.

     Low pork prices may continue for some time, MNI concluded after consulting

industry sources. China's environment protection campaign, however, could weigh

on further growth of pork price as regulators shut down some farms on pollution

concerns. Trade spat with the U.S. may stoke prices after China threatened to

slap 25% tariffs on U.S. soybeans, an essential protein ingredient for animal

feed.

     PPI also was below expectation, increased by 3.1% y/y compared with the

3.2% MNI forecast and 3.7% in February. It was the lowest reading since October

2016 when it was 1.2%. 

     M/m PPI growth dropped 0.2%, decelerating from the 0.1% decline in

February. 

     --SLOWER MOMENTUM

     Other than the holiday effect, the slowing PPI growth also reflect slower

momentum of China's economic growth as regulators attempted myriad measures to

upgrade its economy: curbing credit growth, controlling financial risks,

tackling a property bubble, cutting excessive capacity, and enhancing

environment protection.

     Finally, the slowing price gains of raw material and commodities

contributed to a softer PPI in March: raw material price growth was 5.1% y/y

from 5.9% in February, when it registered a drop of 0.5%. 

--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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