China Consumer & Producer Prices (Oct.)

Food price drop drags inflation to eleven-year low

  • Headline consumer price inflation fell sharply in October, to its lowest since 2009. But this was almost entirely due to falling food prices – core inflation and factory gate inflation held steady last month.
  • Consumer price inflation fell from +1.7% y/y in September to 0.5% last month (both the Bloomberg consensus and our forecast were 0.8%). (See Chart 1.) Most of the decline was the result of a drop in food price inflation. Pork prices fell 7.0% m/m thanks to a strong rebound in pig stocks in recent months, while base effects from the surge in pork prices a year ago due to African Swine Fever pushed down the y/y growth rate into negative territory for the first time in 19 months, from +25.5% to -2.8%. (See Chart 2.)
  • Looking through the volatility in food prices, price pressures were broadly unchanged. Core consumer price inflation held steady in y/y terms at 0.5%, while in m/m terms the pace of price rises slowed slightly from 0.2% to 0.1%. (See Chart 3.) Producer prices are still down year-on-year but the pace of contraction held steady at -2.1% y/y (Bloomberg and CE -1.9%). (See Chart 4.) In m/m terms, factory gate prices were unchanged last month, with declines in oil and metal prices offsetting rises in most other goods.
  • Consumer price inflation looks set to drop back further in the near-term as pork supply continues to recover from last year’s African swine fever outbreak. But at the same time, demand-side price pressures are likely to strengthen in the coming months given the rebound in consumption and ongoing infrastructure-led stimulus. Policymakers are likely to look through the volatility in food prices and focus on the recovery in underlying inflation. As such, we don’t think low headline inflation will prevent the People’s Bank from raising interest rates next year.

Chart 1: Consumer Prices (% y/y)

Chart 2: Consumer Prices (% y/y)

Chart 3: Core CPI

Chart 4: Producer Prices

Sources: CEIC, Capital Economics

Julian Evans-Pritchard, Senior China Economist,
Sheana Yue, Assistant Economist,

Julian Evans-Pritchard Senior China Economist
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