MNI REALITY CHECK: China August CPI To Ease On Base Effect

China's consumer inflation index looks set to edge lower in August, helped by the favorable base effects in comparison to the same month last year, industry leaders and analysts told MNI, although food prices remain at the same elevated levels seen in July and many other costs rose as the economy continues its recovery from the pandemic.

Meat prices are still the main driving force for higher prices, but the cost of pork has stabilized with only a modest increase after sharp gains in recent months, as imports and releases from government stocks increased, said Ying Xiwen, analyst at China Minsheng Bank.

"Pork prices continue at a relative high level of around CNY51 per kilo in August, almost flat from that in the second half of July, but lower than the more than CNY55 per kilo in early July," said Jiang Hongxia, staff member at Jiangsu Linjato Market.

Hog prices also remained strong, as many breeders failed to execute their slaughter plans, held up by bad weather in many areas, said Zeng Zihua, analyst at Zhue.com.cn, a community for pig breeders. The average price of hogs was CNY37.27 per kilo in August, compared to July's CNY37.38 per kilo, Zeng said.

VEGETABLE PRICES

Vegetables prices saw some significant gains than in July as the bad weather affected a wider area, dampening the vegetable crop and underpinning already higher vegetable prices, said Jiang, adding that the price of white radishes more than tripled in August from the same period last year.

"We have largely relied on vegetable supply from Northern China in the past two months, as Southern China was in the rainy season and barely saw any local vegetables," said Jiang, "But in August, even some vegetable-producing regions in the north, like Shandong province encountered wet weather."

Overall though, the average wholesale price of 120 different kinds of vegetables in the Jiangsu Linjato Market was CNY3.12 per kilo, compared to July's CNY3.15 per kilo, according to Jiang.

SERVICE PRICES

Prices for non-food items are expected to turn positive on a monthly basis for the first time this year, as demand for offline education, culture, entertainment and other services rebound as social distancing measures ease, said Ying.

Despite government increasing gasoline and diesel prices in late August by CNY85 and CNY80 per ton respectively, the impact on private car owners was limited, as costs rose only an extra CNY3.5 to fill up a 50 liter fuel tank, according to Oilchem.Net, a commodities advisory.

Both gasoline and diesel demand remained weak in August, as rainy weather discouraged both consumer travelling and industry infrastructure construction.

The average monthly wholesale price of gasoline rose to CNY5,775 per ton in August, a rise of 1.16% from July, pushing the average retail price to rise by 0.84% to CNY7,543 per ton, said Liu Binjuan, Oilchem.Net analyst. While both the average wholesale and retail price of diesel fell from the previous month.

Ying expects CPI may ease to 2.5% y/y in August from July's reading of 2.7%. The median of analysts' forecasts polled by Bloomberg sits at 2.3% y/y.