As expected, the rising cost of pork pushed Chinese consumer price inflation higher to an annual rate of 2% in August, but the real story, as it has been for much of the past three years, was the tightening hold deflation has over Chinese industry.
Pork prices have been rising for more than three months, and have helped push the country’s CPI from 1.2% to 2% last month, the fastest annual pace for just over a year.
Economists said the rise in pork prices last month in fact was 20% higher than a year ago against 16.7% in July.
Pork’s contribution to the CPI last month was 0.6%, leaving the underlying rate at a steady annual reading of 1.1%.
The Chinese government’s CPI target for this year is “about 3%”, meaning that like the US and much of Europe and the UK, headline inflation is well short of official targets, and in some cases hinting at a return of price deflation.
That means there’s been no impact on basic consumer costs from the fall in the value of the yuan, or the stockmarket volatility, or the slowdown in manufacturing activity to multi year lows.
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And manufacturing and other producing sectors is where the real price story remains in China. Producer prices fell at an annual rate of 5.9% in August, deeper than the any month since 2009. It was the 42nd consecutive fall in the PPI. That’s down from a 5.4% rate in July.
Driving prices lower has been the downturn in the housing sector, meaning lower demand for a wide range of products and commodities (as Australian iron ore and coal producers can attest to).
But also helping has been the fall in commodity prices generally in the wake of the big slide in global oil and gas prices since the middle of 2014.
"Producer prices remain in deflation in China, because of the high supply of raw materials and commodities and the overcapacity within much heavy industry," Moody’s said. "Demand remains weak and is not likely to pick up until the housing market recovers. Meanwhile stock market ructions may have caused businesses to slow spending further in July."
And falling producer prices were a feature in Japan in August.
Data out yesterday showed that the country’s Producer Price Index fell 3.6% in August from a year earlier, the fastest pace of decline since a 3.8% drop in Calendar 2009, at the depths of the GFC.
The August fall was down from a 3.1% drop in July, which had been revised from an initial estimate of a drop of 3%.
Export prices fell 6.1% from a year earlier, (a fall of 5.2% in July) while import prices plunged 19.5% in August from the July drop of 18.3%. For that we can blame the slide in global oil and gas prices, which more than offset the weakness in the yen.
