MNI REALITY CHECK: China CPI Higher On Rising Services Costs

China's consumer price index is set to edge higher in April, accelerating the move back into positive territory started in March, as recovering services prices will largely offset declining food prices and base comparisons to the same period last year help lift the headline number, industry insiders and analysts told MNI.

April CPI is projected to rise as much as 1% year-on-year as the improving Covid situation is helping drive good supply and demand across the economy, with recovering services prices are supporting, despite both pork and vegetable prices remaining in the downward trend seen since mid-February, said Wang Jingwen, a senior researcher at the Pangoal Institution.

Base comparisons to the CPI's m/m fall in April 2020 will help lift the headline figure, said Zhang Yu, chief analyst at Huachuang Securities, who predicts CPI to rise 0.6% y/y in April.

FOOD PRICES

Pork prices, the main CPI driver through 2020, continued to fall into April, said a staff member at Beijing Yuegezhuang agri-food wholesale market, with average wholesale pork prices CNY26.39 per kilogram, declining 16% from the previous month or 33.1% from a year earlier.

Falling pork prices were largely attributed to sufficient supply as hog inventories increased, with total pork supply on the wholesale market increasing 8.2% from the previous month, the person said. However, the staff member expects pork prices may start edging higher again in coming months, as swine fever in some provinces has dampened the number of hogs available for slaughter.

The weighted average wholesale price of more than 200 kinds of vegetables on the market was CNY4.77 per kg in April, a fall of 12.5% m/m, the person continued, adding that supply increased 2.6% last month given warmer weather.

SERVICES

Service prices including medical care, transportation and entertainment may be driven up by the Qingming Festival in early April, while energy-related costs will continue to be pushed up by higher upstream prices, said Wang. Clothing prices will also pick up into peak season, Wang added.

Fuel costs rose on the government's moves to hike domestic gasoline prices by CNY100 per ton, resulting in a rise of CNY4 to fill up a 50 liter fuel tank for car owners, having little impact on consumers, according to Wang Tao, an analyst at Zhongyu Information, a commodities advisory based in Shandong province.

Though the holiday gave a limited boost to fuel demand, gasoline consumption is now moving into the peak summer season, with strong momentum for price rise, said Wang.

The average monthly wholesale price of gasoline through PetroChina and Sinopec in 30 major provinces rose CNY219 to CNY7,694 per ton from March, while that of diesel fell CNY97 to CNY6,263, Wang added.

The median of analysts' expectation for April CPI polled by Bloomberg was 1.0% y/y, up from the 0.4% gain seen in March.