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China Consumer Inflation Picks Up in May as Food Prices Jump

Bloomberg News
China Consumer Inflation Picks Up in May as Food Prices Jump

(Bloomberg) -- China’s inflation pressure continued rising in May, as supply shocks pushed up food costs.

The consumer price index rose 2.7% last month from a year earlier, while factory prices gained 0.6%, according to the National Bureau of Statistics. That’s the same as forecast by economists in a Bloomberg survey in both cases

Key Insights

Pork prices rose 18.2% from a year earlier, vegetable prices rose 13.3% and fruit prices rose 26.7% in May. NBS data also showed consumer prices were unchanged from April, indicating stabilizing inflation pressuresFood prices rose 7.7% from a year ago, contributing 1.48 percentage points to the CPI growth, according to a statement from the NBS“The surge of fruit and egg prices is short-lived and could subside in summer when supply increases’’ although pork prices could rise further due to African Swine Fever, said Lu Ting, chief China economist at Nomura Holdings Inc. in Hong Kong. “We expect headline year-on-year CPI inflation to breach above 3% in some months this year, but it may impose little pressure on the PBOC’s easing bias.’’

What Bloomberg’s Economists Say:

"We doubt the PBOC would respond to rising food prices caused by supply-side shocks by tightening policy, especially when core CPI and PPI readings remain sluggish," but rather, we think pressure to ease policy would increase if trade tensions with the U.S. persist, pushing growth down further.

-- David Qu and Qian WanSee full note here.

The rise in producer prices slowed to 0.2% from April, with prices falling in 11 of 40 industrial sectors and rising in 21The slower PPI means that manufacturing activities are still growing very slowly and that could derail economic growth if there’s an escalation of trade tensions, according to Iris Pang, an economist at ING Bank N.V. in Hong Kong. “I expect more fiscal stimulus in the form of infrastructure to boost raw material manufacturing.”

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See table for breakdown of price changes“It is important for the PPI to hold up” as deflationary risks are a real threat to the industrial economy and could easily drag China into a negative spiral, said Raymond Yeung, chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “The recent down turn of oil prices will still create downward pressure on PPI. This risk is no less than the trade war.”

(Updates with comments from Bloomberg economists.)

--With assistance from Miao Han and Kevin Hamlin.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger

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