MNI: China CPI To Rise As Heatwave Takes Toll - Analysts

Chinese consumer price inflation is forecast to edge close to the government’s 3% target in August after a punishing heatwave boosted some food prices, but the rate of producer price inflation should ease due to falls in crude oil, analysts said.

Median forecasts for Friday’s data point to August CPI printing at a year-on-year rate of 2.8%, up from 2.7% in July, while PPI eases to 3.2% from 4.2%.

While pork prices, a primary driver of CPI, remained steady over the past month, month-on-month increases of 3.8% and 7.2%, respectively, for vegetables and eggs should help push headline CPI to 2.9%, up from 2.7% in July, said CITIC Securities chief macroeconomic analyst Cheng Qiang.

Vegetable prices rose significantly due to drought in southern China and floods in northern parts of the country, said Minsheng Bank chief economist Wen Bin, adding that Covid-related logistics disruptions compounded supply problems. He added that higher egg prices reflected reduced supply due to hot weather and increased holiday demand

Wen expects August CPI to remain steady at 2.7%, as non-food price gains were muted. The government lowered petrol and diesel prices twice in the month following the fall in global oil prices.

Core inflation, which excludes food and energy prices, remains well behaved given limited price increases for daily necessities, consumer services and rental prices, Wen said. Prices for airline tickets and hotels declined from July due to Covid outbreaks in tourist areas and the end of summer vacations.

FACTORY-GATE INFLATION

Producer prices are likely to continue to trend lower in August due to a higher comparison base with the same time last year, analysts agreed.

A fall in the price of oil - Brent crude oil fell 11.1% month-on-month to USD100.33 per barrel in August - is also expected to be a significant drag on PPI, said Cheng.

While domestic industrial product prices were lower due to weak demand at home and official measures to ensure supply, Wen noted that oil and coal prices fell sharply and that there had been more declines in midstream product prices than rises.

Prices of non-ferrous metals continued to rebound amid domestic power rationing and high electricity prices overseas, while ferrous metals and building materials were set for year-on-year declines due to weakness in the property sector, CICC analysts said.