JAKARTA (TheInsiderStories) – China’s consumer price index (CPI) climbed to 2.5 percent year on year (YoY) in September, up 0.2 percentage point in August, according to the National Bureau of Statistics on Tuesday (16/10). It was the fourth consecutive month of increase since June and the highest over the past seven months.
The headline increase was primarily driven by higher non-food prices, which contributed 1.78 percentage points to the CPI inflation. In particular, the prices of residence rose 2.6 percent YoY on soaring rents, education prices increased by 3.1 percent YoY as the new school semester began in September, and fuel prices jumped 20.8 percent YoY due to higher oil prices.
Furthermore, food prices contributed 0.69 percentage point to the inflation in September. Pork prices, which are weighted heavily in the CPI basket, declined at a slower pace of 2.4 percent YoY in September compared with a 4.9 percent YoY, decrease in the previous month. Owing to floods in Shouguang, an important vegetable production base, vegetable prices increased 14.6 percent YoY.
China’s producer price index (PPI) dipped to a five-month low of 3.6 percent YoY in September, down 0.5 percentage point from August. The headline decline was mainly due to weaker upstream price inflation. In particular, ferrous metal smelting and processing, and chemical raw materials and chemical products, non-metallic mineral products, coal mining and washing sectors together contributed 0.32 percentage point to the fall in the annual PPI inflation.
Yanjun Lin, senior economist at IHS Markit rated, China’s CPI is expected to face mild upward pressure in the remainder of the year. The recent required reserve ratio cut by the central bank injected CNY750 billion (US$108 billion) of liquidity into the banking system and is likely to increase inflationary pressure. In addition, rising rents and oil prices will pose an upside risk to non-food prices. Moreover, the recovery of pork prices and tariffs on agricultural imports may create upward pressure on food price inflation.
However, as the PPI is on a declining trend and vegetable prices will fall on improving weather conditions, the inflationary pressure is likely to be moderate. IHS Markit forecasts that CPI to increase by 2.3 percent YoY in 2018, below the government target of 3 percent.
He continued, PPI is likely to continue its downtrend in the fourth quarter of 2018. As the government steps up fiscal spending, investment is expected to recover. This will increase demand for raw materials and push up the PPI.
However, weakening external demand due to rising US-China trade hostilities will put downward pressure on the prices of industrial goods. Furthermore, the government has relaxed environmental protection curbs in order to support economic growth amid trade tensions. This will boost industrial production and drag on YoY PPI inflation.
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