JAKARTA (TheInsiderStories)China‘s consumer price index (CPI) rose 2.3 percent year on year (YoY) in August, following a 2.1 percent increase in July, according to the National Bureau of Statistics. It was the third straight month of increase since June and the highest over the past six months.

Higher food inflation led the headline CPI increase, as flood in Shandong province drove an increase in fresh vegetable prices and the decline in pork prices continued to narrow. Moreover, education price inflation rose with the new school semester beginning in September and housing-related price inflation increased with roaring rental cost this summer.

While, China’s producer price index (PPI) was up 4.1 percent (YoY) in August, down from a 4.6 percent (YoY) rise in July, the second consecutive month of decline. PPI declined across heavy industrial sectors, while increased in consumer goods manufacturing sectors.

By sector, ferrous-metals, crude oil processing and non-ferrous metal processing reported higher price inflation compared to the previous month.

According to Yating Xu, senior economist at IHS Markit, the consumer inflation pressure will remain in coming months, while the risk of stagflation remains low. Services price inflation may continue to rise due to further increase in rentals and risks of oil price hike.

Moreover, the recovery in pork prices and increase in imported goods prices may add additional upward pressure to CPI in the fourth quarter. However, he added, as PPI was on a downward trajectory and fresh vegetable price inflation may ease as weather condition improves, the risk of stagflation remains low this year.

IHS Markit forecasts that CPI will rise 2.2 percent in 2018, higher than the 1.6 percent increase in 2017.

Moderate momentum in annual basis, PPI may continue into the fourth quarter, despite month on month (MoM) upward pressure in the short term. Environmental protection curbs and the expected recovery in infrastructure investment may create upward pressure to the prices of raw materials and m/m PPI in coming months.

However, rising base effect since the third quarter of 2017 and on-going deleveraging campaign, particularly the crackdown on shadow banking, may continue to drag PPI in the remainder of 2018.

Written by Staff Editor, Email: theinsiderstories@gmail.com