MNI REALITY CHECK: China Oct CPI Seen Up On Food, Fuel Costs

China's consumer price index likely edged higher in October, as both food and energy prices rose on tighter supply, industry insiders and market analysts told MNI.

"CPI is expected to rebound to 1.3% y/y from September's 0.7% gain," said Wang Jingwen, a senior researcher at the Pangoal Institution, pointing to rising food and fuel costs.

The price index of edible agricultural products tracked by the Ministry of Commerce reversed the previous fall to rise 3.1% m/m in October, he noted, driven largely by a 6.5% rise in vegetable prices -- the largest monthly increase in the last ten years.

On a monthly basis, CPI could rise by a further 0.3%, Wang added.

VEGETABLE PRICES

"Normally, vegetable supply should be sufficient in autumn, but cold air and heavy rainfall in early October had disrupted production, almost nationwide," said Jiang Hongxia, staff member at Jiangsu Linjato Market. According to Jiang, the average basket price of over one hundred kinds of vegetables was CNY3.31 per kilo on the market in October, compared to CNY2.76 in the same period last year, a near 20% year-on-year rise.

Zhang Yu, chief analyst at Huachuang Securities noted wholesale prices are more than 20% higher than a month ago, with severe weather, rising production costs, anti-epidemic measures, and power cuts largely to blame. She estimated that such unusual price hikes could drive up overall CPI by an additional 0.3-0.4 percentage point.

Pork prices, the main CPI driver through 2021, also picked up in the second half of the month on tighter supply. As the weather turns cooler, pork demand in Sichuan and Hubei provinces increased as people started to make Chinese sausages. But supply of pork tightened, as major pig farms mostly completed their slaughter plans and smaller pig breeders were reluctant to sell into low prices, said Pan Tingting, an analyst at Mysteel, an agricultural data and information provider.

The government's move to accelerate pork purchases for national reserves to help stabilize prices also drained some supply, Jiang added.

According to Pan, the average wholesale swine carcass price was CNY17.31 per kilo in October, down 1.25% m/m and 54.25% y/y. But the price had rebounded to CNY21.27 per kilo on the last day of October, rising 42.2% from end-September, Pan noted.

Pork prices may see a continuing but limited rebound through November, considering the high inventory of frozen meat and the back-to-normal hog production, said Pan.

NON-FOOD PRICES

With the expectation of an upcoming cold winter and a shortage of natural gas and coal in Europe and the U.S., London Brent oil price rose 11.9% in October from September, pushing up domestic fuel costs, said Zhang.

The government hiked the domestic gasoline and diesel prices twice in October, leading to a total rise of CNY645 and CNY620 per ton respectively. This resulted in a rise of about CNY25.5 to fill a 50-litre fuel tank with unleaded fuel for private car owners, according to staff at Sinopec.

The latest CPI data will be released Wednesday, November 10 at 0930 Beijing Time, with the median of analysts' expecting October CPI to rise 1.4% y/y, accelerating from the 0.7% gain seen in September.