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MNI REALITY CHECK: China CPI To Jump In Dec On Food Costs

(MNI) LONDON
BEIJING (MNI)

China's consumer price index may rise in December, recovering from last month's first negative reading in 11 years, with rising fuel costs and higher food prices a main driver, industry leaders and analysts told MNI.

"December CPI is likely to reverse the previous (month's) fall with an estimated 0.3% year-on-year growth, although it may soon fall back into the negative territory in Q1 2021," said Wang Jingwen, a senior researcher at the Pangoal Institution. Wang calculated that food prices rose 2.5% m/m and 2% y/y in December, reversing respective falls of 2.4% m/m and 2% y/y in November.

Prices of many food items will likely be pushed higher as winter weather disrupted supplies could struggle to fully meet an expected increase in demand ahead of the Lunar New Year holiday.

Pork prices, the main CPI driver through 2020, largely rebounded on a monthly basis as food companies start to stockpile ahead of the upcoming Spring Festival with less sizeable hogs ready for slaughter as pig farmers had sold as prices continued to drop in previous months, said Lin Guofa, chief research officer at BRIC, an agricultural consulting firm with data covering over 200 countries. Recent stricter inspections of frozen meat as a Covid-19 deterrent also diminished supply, Lin added.

The average hog price was CNY33.5 per kilo in December, compared to November's CNY28.6, 17.1% higher across the month but still 3.2% lower than a year earlier, according to Lin.

"The average wholesale pork prices in the market was around CNY36-38 per kilo in early December, gradually rising to around CNY40-42 per kilo by the end of the month," said a staff member at the Jingxiu Dadi Agricultural Products Wholesale Market in Beijing, adding that the price continued to rise slightly in early January. But it was still lower than the level of same period last year, when the price was around CNY54-56 per kilo, the staff noted.

Lin believes that the current round of pig price increases are coming to an end as the sow stock has recovered to 90% of the level at end-2017 before the swine fever hit. It is expected that pig prices would largely decline by mid-2021 as more hogs become big enough for slaughter, Lin said.

VEGETABLE PRICES

Most vegetable saw prices rise significantly as the lower temperature in December increased the difficulty of vegetable production, especially ginger, garlic and winter melon which require longer planting times, said Lin. The price of green onions more than doubled from the normal level, he added.

The price index of a basket of vegetables released by the Ministry of Agriculture and Rural Affair was 128.69 in December, up 7.17% from November, reversing the 2.04% decrease in the previous month.

NON-FOOD PRICES

Fuel costs rose on the government's three domestic gasoline price hikes in December, rising by a total CNY495 per ton. For car owners, it will cost an additional CNY19 fill up with an average 50 litres of gasoline, according to Meng Xiao, an analyst at Zhongyu Information, a commodities advisory based in Shandong province.

Fuel demand is still picking up and any sporadic Covid-19 outbreak would interrupt the recovery, said Meng, expecting lower than normal demand in January and February, although it could pick up as the recent cold weather has boosted car use and gas stations are adding inventory ahead of the Chinese New Year.

The average monthly wholesale price of gasoline through PetroChina and Sinopec in 30 major provinces rose CNY423 to CNY6,096 per ton from November, while that of diesel increased CNY454 to CNY5,558, Meng added.

Wang expects the rebound in food prices and the low base comparison with last December to push CPI to +0.3% y/y, reversing November's -0.5%. The median of analysts' expectation polled by Bloomberg was 0.0%.

MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
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