MNI REALITY CHECK: China March CPI Seen Back in The Black

China's consumer price index may rise in March, reversing the previous two months' negative readings, as higher fuel costs and declining food prices largely offset each other but base comparisons against 2020 kick in, industry leaders and analysts told MNI.

March CPI is seen rising as much as 0.2% year-on-year, as the sharp month-on-month fall in the corresponding period last year lowers the comparison base, said Wang Jingwen, a senior researcher at the Pangoal Institution. Though on a monthly basis, CPI could fall as much as 0.8% due to lower food and service prices after the Chinese New Year holiday in February.

Pork prices, the main CPI driver through 2020, decreased steadily throughout the month, falling by a few cents per 500 gram every week, said a staff member at Beijing Shuitun agri-food wholesale market. The average wholesale swine carcass prices were about CNY30 per kilogram by end-March, declining by about CNY2 from the beginning of the month, the person said, who recalled the price sitting above CNY37 per kilogram in March 2020.

FOOD PRICES

Falling pork prices were largely attributed to sufficient supply given increasing hog inventory and lower transportation costs as the epidemic comes under control. The staff member noted that demand for pork rebounded from the previous seasonal decline after the peak season of Spring Festival, mainly driven by the reopening of factories and schools.

According to the Ministry of Agriculture and Rural Affairs, pork prices in 500 county bazaars nationwide have fallen for nine consecutive weeks after rising to CNY54.22 per kg in the third week of January and sat at CNY44.09 per kg in the last week of March, down by 18.7% accumulatively.

Most vegetable prices saw seasonal declines as warmer weather help to boost supply, the staff member said.

The national average wholesale price of 28 kinds of vegetables was CNY5.20 per kg in March, a decrease of 13.9% from the previous month, according to the Ministry of Agriculture and Rural Affair.

SERVICES

Service prices including transportation and entertainment could fall after the holiday effect subsided, so did clothing prices which were still in the off-season, said Wang. On the other hand, energy-related costs will be driven up by higher upstream prices, and the prices of hotel and catering will also pick up as Covid-19 conditions improve, Wang added.

Fuel costs rose on the government's moves to hike the domestic gasoline price twice before lowering it on the last day of March, resulting in a rise of CNY10 to fill up a 50 liter fuel tank for car owners, according to Xu Wenwen, an analyst at Oilchem.Net, a commodities advisory group.

Both the average gasoline retail and wholesale prices nationwide rose from the previous month, though demand remain flat, said Xu. The government is likely to hike the domestic gasoline prices further into April as the OPEC+ oil producers are likely to continue with the current scale of output cuts and Saudi Arabia may extend its voluntary production cut, said Li Yan, an analyst at Oilchem.Net.

The median of analysts' expectation for March CPI polled by Bloomberg was 0.3% y/y, reversing the 0.2% fall in February.