China’s consumer inflation hits two-year high

A rise in demand due to eased Covid curbs may further increase prices

Consumer prices in China grew 2.5% year-on-year in June, beating economists’ expectations of a 2.4% gain, the National Bureau of Statistics data revealed on Saturday.

The released numbers demonstrate the strongest pace in two years and compare with 2.1% growth recorded in May. In June, food prices grew by 2.9% from a year earlier, while non-food prices grew by 2.5% last month, year-on-year, up from a reading of 2.3% in May.

Though consumer demand remains weak due to China’s strict Covid control measures along with sporadic virus outbreaks, acceleration in consumer prices is being attributed to the rising cost of pork and energy.

Pork is a key product in China’s consumer price index basket. Prices for the meat dropped at a slower pace of 6% in June, following a 21.1% drop in May. On a month-on-month basis, pork prices grew 2.9%. 

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“CPI continued to trend up in June and rose to the highest level in two years,” Zhang Zhiwei, chief economist at Pinpoint Asset Management, told SCMP.

“We expect CPI inflation to keep rising in the second half, as the domestic economy recovers from the lockdown in the first, and the pork price cycle turns inflationary after a long period of deflation.” 

Meanwhile, the producer price index that reflects the prices that factories charge wholesalers for products, increased by 6.1% in June, but dropped from a rise of 6.4% in May. This was above expectations, with the PPI having been expected to increase by 6%.

Chinese authorities have set a target for economic growth of around 5.5% this year but analysts expect it to fall short, with GlobalData predicting 4.1% growth in 2022.

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