MNI REALITY CHECK: China November CPI May Turn Negative

China's consumer inflation may have fallen as low as 0% y/y in November or even dipped into negative territory for the first time in 11 years, as moderate gains in non-food prices fail to offset annual base effects and the continued pressure on pork prices, industry leaders and analysts told MNI.

Pork prices, the main CPI driver over the past year, declined further on both a monthly and annual basis in November on improved pig farming capacity. The average countrywide wholesale price of pork was CNY39.43 per kilo in November, compared to October's CNY42.5, a decline of 7.22% m/m and 16.3% y/y, data released by the Ministry of Agriculture and Rural Affairs said.

Hog prices also fell, with the average at CNY29.82 per kilo in November, falling 2.13% m/m and 14.78% y/y, according to Zeng Zihua, analyst at Zhue.com.cn, a community for pig breeders.

Zeng noted, however, that the price had picked up sharply during the last week of November due to demand for pickling meats as the weather turns colder. Imported frozen meats are less in demand due to Covid-19 being found on meat packaging, pushing up the demand of local fresh pork, Zeng added.

Pork prices are in the process of returning to a normal level around CNY20-24 per kilo as hog production capacity gradually recovers, said Zeng, expecting this could happen as early as H2 2021, Covid-19 allowing.

VEGETABLES

Vegetable prices were largely lower as various seasonal crops came on tap, said a staff member at the Nanjing Agricultural and Sideline Products Logistics Center, adding that October and November normally see the year's production peak.

The average wholesale price of 30 major vegetables in the market was CNY4.84 per kilo, declining 7.47% from the previous month while rising 6.3% from a year earlier, the source said.

However, he expects vegetable prices may increase in the second half of December, as greenhouse planting as colder weather arrives will push up the cost.

NON-FOOD PRICES

Prices of entertainment and education were adjusted downward after the October holiday, but clothing prices continued to rise as winter clothes hit the shops, according to analysts at China Minsheng Bank.

Medical prices rose slightly due to sporadic outbreaks of Covid-19 cases, and rental prices remained weak due to sluggish demand affected by the relapse of the virus in some cities, analysts added.

Fuel costs remain stable as the government had first lowered then hiked the domestic gasoline and diesel prices with almost the same changes in November, which had little impact on car owners, said Lu Xingjun, analyst at 100PPI.com, a Shandong-based commodity data provider.

Gas stations replenished inventory as refined oil prices are expected to rise as international crude oil prices have risen since mid-November, said Lu. He noted that the average wholesale price of gasoline nationwide was lifted up 2.65% m/m to record CNY5,312 per ton by end-November, while that of diesel rose 3.04% to CNY4,695 per ton.

Due to the large increase in the CPI last November, the year-on-year growth rate of CPI in November this year is expected to fall below 0%, likely -0.1%, reversing October's 0.5% growth, analysts predict.