MNI REALITY CHECK: China Jan CPI May Dip Back Into Negative

China's consumer prices may have dipped back into negative territory in January as slower food prices gains on year ago comparisons, in part due to methodology and weighting changes by the statistics agency, weaken the impact on overall CPI, analysts and industry insiders told MNI.

CPI could be 0.2% lower than a year earlier, reversing the 0.2% gain in December, said Ying Xiwen, head of macro and regional economic research at China Mingsheng Bank, although despite being lower on an annualised basis, food price rises will likely drive a sharp increase in the monthly rate, Ying added.

The average wholesale pork prices was CNY33.5 per kilo in January, a rise of 3% m/m, according to CNHNB.COM, the nationwide agricultural B2B website covering over 2,800 counties. Pork demand has soared ahead of the Chinese New Year holiday that starts Feb. 11, said Li Binbin, an analyst at CNHNB.COM. Supply was affected by six southern provinces' banning transportation of live hogs to reduce risks of spreading African swine fever, along with tougher imported frozen meat regulations as a Covid-19 deterrent, Li said.

"Pork prices on the market were around CNY50 per kilo in January, rising slightly from December but pretty much the same level from a year earlier," said Jiang Hongxia, staff member at Jiangsu Linjato Market. She noted that supply in January was more stable than a year ago when food transportation was disrupted by the initial outbreak of Covid-19.

"The average price of over a hundred vegetables on the market was CNY3.82 per kilo in January, compared to CNY3.09 same period last year," Jiang added.

Most vegetables saw prices rise in January on both monthly and yearly readings, due to holiday demand and tighter supply. Vegetable crops and transportation were hit by low temperatures in early January, said Li. A resurgence of Covid cases in northern provinces such as Hebei and Beijing also caused disruptions, pushing up costs, Li added.

CPI ADJUSTMENT

According to Ying's calculation, overall food prices rose by less than 1% y/y in January. He noted that the Chinese New Year fell in the first month of the year in 2020 during when food prices largely rose on the holiday effect, boosting the comparison base. This year, the holiday falls in February.

However, Ying also noted that food prices may have less impact on CPI this year as the statistics authority is set to change the base period and adjust weights. He expects the authority to lower the weighting of food prices by 2-3%, with pork prices possibly taking 0.1 to 0.2 percentage points off the total.

NON-FOOD PRICES

As for non-food categories, sporadic outbreaks of Covid-19 have limited traveling and dining out, and the service sector may find it difficult to enjoy a normal holiday bonanza, said Ying.

Fuel costs rose on the government's two domestic gasoline price hikes in January, rising by a total CNY260 per ton. For car owners, it will cost an additional CNY10 to fill an average 50 litres tank, according to Lu Xingjun, analyst at 100PPI.com, a Shandong-based commodity data provider.

Gas stations remain cautious in restocking, as demand remains sluggish with virus dampening logistics and traveling, said Lu. January travel will be reduced by one-third of the usual holiday amount as the government is encouraging people to stay where they are during the holiday.

Lu noted that the average wholesale price of gasoline nationwide was lifted up 1.6% m/m to record CNY5,793 per ton by end-January, while that of diesel fell 0.85% to CNY4,822 per ton.

The median of analysts' expectation of January CPI polled by Bloomberg was -0.2%.