Consumer prices in China have risen as Kovid asks for food stocks

Fresh vegetable prices rose 24% year-on-year in April as consumers stocked to prepare for potential stay-home orders. Here is a picture of the delivery driver of Alibaba’s Hema Fresh Supermarket in Beijing on May 10, 2022.

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BEIJING – Chinese consumer and producer prices rose more than expected in April, according to data released Wednesday by the National Bureau of Statistics.

The consumer price index rose 2.1% last month from a year earlier, due to rising energy and fresh vegetable prices. According to a Reuters poll, readings are at the top for forecasting 1.7% growth.

The April figure is the highest since November’s 2.3% print and above the 18-month average of 0.9% consumer inflation. China’s official CPI target for 2022 is “about 3%”.

“The main drivers were rising food costs due to rising transportation costs and tight recovery in demand due to tight curb restrictions,” Goldman Sachs analysts said in a report on Wednesday.

“Over the years, we expect CPI inflation to rise and PPI inflation to fall on the base effect,” the report said. “Gradually, CPI inflation may moderate in the near term as food inflationary pressures may ease with the improved Covid situation in China.”

Since March, mainland China has tightened travel bans and imposed house-to-house orders in many parts of the city to contain the country’s worst cove epidemic by early 2020. Controls have prevented many factories from producing at full capacity or transferring goods between suppliers and customers.

Prices of fresh vegetables rose 24% year-on-year in April, while prices of fresh fruits rose 14.1% at that time. Pork prices, a major contributor to China’s CPI, rose a relatively rare 1.5% year-on-month, down 33.3% from a year earlier.

Fuel prices for transportation rose 28.4% year-on-year, reflecting the recent rise in oil and commodity prices.

Slower consumer demand

However, China’s rising consumer price index does not mean that locals face the same pressures as Americans.

U.S. consumer prices rose the most in the early 1980’s, even during the food and energy crunch. April figures, released after Wednesday, are forecast to be close to a decade-old high of 8.5% in March.

In China, excluding food and energy prices, the consumer price index rose 0.9% in April from a year earlier.

In the long run, analysts warn that overall consumer demand in China remains depressed due to uncertainty about future earnings.

Some businesses have even lowered prices to attract buyers.

The Caixin Services PMI for April – a monthly sentiment survey – found that businesses have fallen sharply since May 2020, “several companies have reduced their fees to attract new business in a state of muted demand,” the statement said.

A similar survey of manufacturers found that despite the sharp rise in production costs, sales prices have risen only slightly as companies remain competitive and try to attract new businesses.

Factory costs are high

In April, China’s producer price index moderated for the fourth straight month, rising 8% year-on-year. It was still above Reuters’ forecast for 7.7% growth.

Within the PPI, the purchase price has risen much faster than the so-called factory gate price – the price of goods sold from the factory for further production or sale to distributors.

This is an indication that cost pressures are unevenly distributed across the industry, says Bruce Pang, head of macro and strategy research at China Renaissance.

He said that different businesses would face different effects on their profit margins.

Translated into Chinese by CNBC, Pang said there was an “urgent need” for monetary and fiscal policy to provide targeted assistance to companies severely affected by the epidemic.

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China’s central bank and other authorities have announced a number of measures over the past few weeks to support growth, although the scale of those measures has generally disappointed markets.

Robin Jing, chief economist at Morgan Stanley, and a team said in a note on Tuesday that “cowardly lockdowns have reduced the effectiveness of policy simplification and silenced demand rather than supply.”

At the end of April, the agency lowered its GDP target for China to 4.2%, based on the expectation that Kovid controls would disrupt the supply chain in the long run. This is lower than the forecast of 4.6%.

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