MNI DATA ANALYSIS: China CPI - Pork, Oil Moves Most Concerning

--Pork Prices To Keep Pushing Up CPI

--Producer Prices Rise On Base Effects, But PPI Deflation Possible

     BEIJING (MNI) - China's consumer price index rose to a six-month high in

April and the producer price index built on March's first gain in nine months,

data released by the National Bureau of Statistics on Thursday showed. 

     It isn't a general rise in prices, that has most economists eyeing the

data, but the increasing cost of pork and oil.

     Inflation rose 2.5% y/y in April, up from 2.3% in March, missing the 2.6%

projected by economists polled by MNI. While PPI also rose to 0.9% y/y from

March's 0.4%, beating the 0.6% forecast in an MNI survey.

     --PORK PRICES SPIKED

     April food price rose 6.1% y/y, compared with 4.1% in March, dragging CPI

higher by 1.19 percentage points, the NBS said. The price of pork continued to

rise, up by 14.4% y/y after for the first time in 25 months in March, gaining

5.1%, pressured by supply disruptions caused by an outbreak of African swine

flu.

     Pork prices are in an upward cycle and will keep pushing CPI higher, Li

Chao, an analyst at Huatai Securities wrote in a report, noting that the peak

would likely be seen in the middle of this year, although it would be below the

government's 2019 3% ceiling.

     Climbing pork and oil prices could be the greatest upside risk, as

geopolitical conflicts in the Middle East may lead to a short-term rapid rise in

oil prices, Li added.

     Core CPI, excluding food and energy prices, was stable at 1.7%, edging

lower from March's 1.8%, CICC noted in a report.

     --BASE EFFECTS HELPED

     PPI rose 0.9% y/y, up from March's 0.4%, outpacing the 0.6% forecast in an

MNI survey and hitting a four-month high. This is partly due to higher

production material prices, which rose 0.9% y/y from March's 0.3%, dragging PPI

up 0.66 percentage points, the NBS said.

     The pickup was helped by a rise in ferrous metal prices as well as oil

processing, said Deng Haiqing, chief economist at Wallstreet CN in a report.

     Base effects from last year were a main driver for the rise of both PPI and

CPI, according to the NBS. Carry-over effects from last year contributed 1.3

percentage points to the CPI gains in April, and as for PPI, the base factor

made up for 1.1 percentage points, the NBS said.

     Going forward, CPI could soar further and break 3%, though it is unlikely

to stay above 3% for long, unless the credit cycle accelerates to expand. While

May PPI growth could be suppressed by the high base same period last year.

Meanwhile, the value-added tax rate cuts may dampen the PPI gains in the short

term, according to the CICC report.

     April could be the peak of PPI this year, and ex-factory gate deflation is

still high possible, Deng warned.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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