... Another severe headwind facing the Chinese economy is the African swine fever outbreak. June’s CPI showed that food prices rose 8.3 per cent, with pork prices rising by 21.1 per cent. This was 2.9 percentage points higher than in May…

 

 

China economy feels the strain as consumer prices soar and producer prices plummet to the brink of deflation

 

SCMP

via The Edge Markets - July 10, 2019

 

(July 10): China’s inflation figures revealed two separate headaches for Beijing on Wednesday, with consumer prices continuing to rise, while the prices producers charged at factory gates in June threatened to dip into deflation.

 

The consumer price index (CPI) stayed at 2.7 per cent, the same as in May, which was the highest reading for 15 months. This indicates that prices are continuing to rise for Chinese consumers at a time when the economy is battling serious headwinds on a number of different fronts.

 

Meanwhile, the producer price index (PPI), the price charged to buyers from producers at the factory gates, is teetering on the brink of deflation, reporting at 0.0 per cent in June, down from 0.6 per cent in May and below a Bloomberg poll, the median forecast of which was 0.1 per cent.

 

Domestic consumption has been a concern of policymakers in Beijing for some time, and the fact that prices are rising, it will add to this anxiety since it makes it more difficult for consumers to buy more.

 

However, the PPI number provides an additional problem, suggesting that the country’s manufacturers are unable to receive the prices they want for their goods. This was reflected in the fact that on Monday it was announced that car sales had risen for the first time since May 2018. However, it came with the caveat that dealers offered discounts of up to 50 per cent to clear inventory before the implementation of new emissions rules.

 

Sluggish PPI is indicative of a slowdown in China’s industrial economy.

 

Industrial production grew by 5.0 per cent in May from a year earlier, down from 5.4 per cent in April, to the lowest reading since 2002...

 

... Another severe headwind facing the Chinese economy is the African swine fever outbreak. June’s CPI showed that food prices rose 8.3 per cent, with pork prices rising by 21.1 per cent. This was 2.9 percentage points higher than in May.

 

The NBS statement said that “the supply of pork is tight” and also drew attention to the price of fresh fruit which rose by 42.7 per cent, an increase of 16.0 percentage points from May.

 

But it is African swine fever and the rise of pork prices which will be the biggest cause for anxiety, among the basket of consumer goods used to calculate CPI, since pork is thought to be the single-largest element.

 

China is the world’s largest pork market, consuming around half the global total annually, meaning that a spike in pork prices affects the average consumer disproportionately.

 

At a press conference in Beijing last week, Xin Guochang, executive officer at the Ministry of Agriculture, said that there could be a 10 to 15 per cent drop in pork production in 2019 due to African swine fever. Others expect a much higher drop, with a report from Rabobank in April estimating that up to 200 million pigs were affected by the virus, which could cut pork production by 30 per cent.

 

The government has tried to maintain that the African swine fever outbreak is under control, claiming that there were only 44 new cases over the first six months of 2019, bringing the total number of reported cases so far to 143, with 1.16 million pigs culled.

 

However, a report by Chinese business publication Caixin on Friday claimed that local governments have been ignoring attempts to report the suspected outbreaks by pig breeders around China because they “couldn’t afford to pay the required compensation to the owners of culled pigs”.

 

Caixin reported that other local officials felt they would be punished for reporting cases while under pressure from the central government in Beijing to eradicate the disease...

 

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https://www.theedgemarkets.com/article/china-economy-feels-strain-consumer-prices-soar-and-producer-prices-plummet-brink-deflation