MNI REALITY CHECK: China July CPI Seen Higher On Food Prices

China's consumer prices may edge higher in July as the cost of diet staples pork and vegetables again rose above trend as demand continued to pick up and poor weather in Southern China disrupted supply, industry insiders told MNI.

Key points from their comments ahead of the August 10 CPI data release:

• Pork prices steadily rose on excess demand
• Vegetable prices divided on poor weather
• Fuel costs rose with gasoline consumption restored

PORK PRICES

"The price of pork in the market rose to CNY49 per kilo in mid-July from CNY46 per kilo in early-July, but eased back to CNY47 per kilo by the end of July…It was relatively stable last month with a moderate fluctuation around CNY1 per kilo," staff at Beijing Shuitun agro-food wholesale market told MNI.

"Due to the hot weather, July is usually the slack season for pork, causing less pressure on the relatively tight supply in recent months," he said, noting that more pigs will be available for slaughter in the near future, while the reopening of school canteens in September could boost pork demand.

Vegetable prices were mixed as Southern China suffering from heavy rains and flooding, leading to unstable supply. But unlike the rest of the country, the market in Beijing saw falling vegetable prices as it enjoyed good supplies from Hebei, a nearby Northern province. The weighted average prices of more than 60 kinds of vegetable in the market sat at CNY3 per kilo at end-July, falling 13.21% from the beginning of the month.

"Vegetable prices are still around 10% higher than the same period last year, which is profitable for vegetable growers," he said, expecting farmers to accelerate planting as soon as the rainy weather ends.

Average wholesale pork prices rose to CNY35.4 per kilo on CNHNB.COM in July, a 7% m/m increase, compared to June's 3% rise. This was driven by supply pressured by the increased demand from a wider opening of restaurants, factories and schools since June after the epidemic eases, analysts at this nationwide agricultural B2B website, told MNI.

MIXED FRUIT AND VEG PRICES

Summer fruits saw seasonal declines from June with plentiful supply but reduced demand due to restrained spending on non-staple food. The average prices of watermelon and grape fell 31% and 22% m/m to CNY1.4 and CNY 10.8 per kilo in July.

The prices of summer vegetables like pepper, tomato and eggplant also decline 14%, 4% and 2% from the previous month, respectively, but the prices are still higher than a year ago, CNHNB.COM said.

Analysts at Huachuang Securities also highlighted rising food prices, pointing to average monthly prices of pork and vegetables up 14.9% and 7.3%, respectively, both compared to gains of 3% in June. This was mainly due to poor weather conditions for growing vegetables, along with reduced pig slaughters as infections increased.

Wang Jingwen, a senior researcher at the Pangoal Institution, said non-food prices would have a limited impact on CPI.

"The prices of spending on education and entertainment may stop falling as demand picked up amid the summer holiday in July and August. But rental prices are struggling to recover as the epidemic dampens the job market and the offline service industry."

FUEL COSTS FLAT

Despite government increasing gasoline and diesel prices for the first time this year in late June by CNY120 and CNY110 per ton respectively, the impact on private car owners was limited, as their fuel costs only increased around CNY0.1 per liter in July, according to Oilchem.Net, a commodities advisory.

Gasoline consumption picked up on increased travel demand on hot weather. "Currently, the epidemic has little impact on consumers' fuel demand…with only limited impact in the Xinjiang province and the Northeast China where new COVID-19 cases are spotted," said Li Yan, analyst at Oilchem.Net.

The average monthly wholesale price of gasoline rose by CNY110 to CNY5,779 per ton from June, pushing the average retail price to rise by CNY184 to CNY7,480 per ton, said Li Lin, Oilchem.Net analyst.

July CPI is expected to edge higher on June's read, or come in flat at best, with an expectation for the rate to come in at 2.6% y/y versus 2.5% in June.