MNI REALITY CHECK: China Aug CPI Stalls Despite Food Cost Rise

China's consumer price index may have accelerated only modestly in August, as some food prices, mainly vegetables and eggs soared in extreme weather conditions while service price gains were tamed by sporadic local Covid-19 outbreaks, industry leaders and analysts told MNI.

"CPI may edge up to 1.1% y/y from July's 1.0% growth," said Wang Jingwen, a senior researcher at the Pangoal Institution.

Wang noted that the price index of edible agricultural products tracked by the Ministry of Commerce rose 0.6% m/m in August, ending a run of six consecutive months seeing declines.

The agricultural produce wholesale price index monitored by the Ministry of Agriculture and Rural Affairs rose a steep 3.7% m/m in August, recovering from depressed levels over the past five months. The upticks were mainly attributed to rising vegetable and egg prices due to the increasing logistics and transportation costs caused by heavy rainfall.

The average wholesale price of 28 key vegetables in August was CNY4.6 per kg, rising 10.3% from the previous month, while the average wholesale price of eggs was CNY10.5 per kg, a rise of 14.1% m/m, according to analysts with Ping An Securities.

PORK PRICES

However, pork prices continue to fall on strong supply and weak demand. The price of pork on e-commerce platforms was CNY25 per kilo in August, falling 7% m/m or 27% y/y, according to CNHNB.COM, a nationwide agricultural B2B website covering over 2,800 counties.

The production capacity of live hogs has fully recovered to the levels seen before the 2018 African Swine Fever, meanwhile, demand was muted amid schools' summer vacation as well as hot weather, said Li Binbin, an analyst at CNHNB.COM.

However, pork prices may pick up as the government steps in to boost pork reserves and demand recovers as schools reopen, said Li. Li also noted that the upcoming autumn holidays will help to boost demand as there is a tradition of making preserved meat and sausage until the Spring Festival. Any uptick in pork prices could be limited as pork supply remains sufficient, with live hog inventory still growing in September, Li added.

NON-FOOD PRICES

With the resurgence of the epidemic in some provinces, the demand for close-contact services, including travelling and catering, fell, perhaps leaving service prices only limited room to increase despite the low base comparison in the same period last year, according to analysts from CICC.

Prices of consumer goods, as well as transportation and communication prices may be driven up by higher industrial producer prices given the relatively high cost of raw materials, said analysts with CITIC Securities, noting that August PPI could soar to a new 2021 high of 9.3% and channel through to CPI.

The government lowered domestic gasoline and diesel prices in August, leading to a reduction of CNY250 and CNY245 per ton respectively, the largest one-off reductions this year. This resulted in a fall of about CNY10 to fill a 50-liter fuel tank with unleaded fuel for private car owners, according to staff at Sinopec.

The data will be released Thursday, September 9 at 0930 Beijing Time, with the median of analysts' expecting August CPI to rise between 1.0% and 1.1% y/y, largely in line with the 1.0% gain seen in July.