China's consumer prices climb as Covid prompts food stockpiling

China’s consumer prices climb as Covid prompts food stockpiling

BEIJING — China’s consumer and producer prices rose greater than anticipated in April, based on knowledge from the Nationwide Bureau of Statistics launched Wednesday.

The consumer worth index rose by 2.1% final month from a yr in the past, boosted by a surge in vitality and recent vegetable prices. The studying topped expectations for a 1.8% rise forecast by a Reuters ballot.

April’s determine was additionally the best since November’s 2.3% print and effectively above the 18-month common of 0.9% consumer worth inflation. China’s official CPI goal for 2022 is “around 3%.”

“The main driver was a pick up of food prices due to rising transportation costs and restocking demand from tighter Covid restrictions,” Goldman Sachs analysts mentioned in a report Wednesday.

“In year-over-year terms, we expect CPI inflation to rise and PPI inflation to fall on base effects,” the report mentioned. “Sequentially CPI inflation may moderate in the near term as the inflationary pressures from food prices might ease with the improved Covid situation in China.”

Since March, mainland China has tightened journey restrictions and imposed stay-home orders in lots of components of cities to include the nation’s worst Covid outbreak since early 2020. The controls have prevented many factories from producing at full capability or transferring items between suppliers and clients.

Recent vegetable prices rose by 24% year-on-year in April, whereas recent fruit prices elevated by 14.1% throughout that point. Pork prices, a significant contributor to China’s CPI, posted a comparatively uncommon 1.5% enhance from the prior month for a extra average year-on-year drop of 33.3%.

Gas prices for transportation climbed by 28.4% from a yr earlier, reflecting latest surges in oil and commodities prices.

Sluggish consumer demand

Nonetheless, China’s rising consumer worth index doesn’t suggest locals face the identical pressure that Americans do.

U.S. consumer prices have surged by their most since the early 1980s, even when stripping out food and energy. The April figure due out later on Wednesday is forecast to remain near the decades-high increase of 8.5% seen in March.

In China, excluding food and energy prices, the consumer price index rose by a muted 0.9% in April from a year ago.

Longer-term, analysts warn that overall consumer demand in China remains depressed due to uncertainty about future income.

Some businesses have even cut prices to attract buyers.

The Caixin Services PMI for April — a monthly sentiment survey — found that businesses cut prices at the fastest pace since May 2020, “with a number of firms lowering their fees in order to attract new business amid muted demand conditions,” a release said.

A similar survey of manufacturers found that despite a sharp rise in the cost of production, selling prices increased only modestly as firms tried to remain competitive and attract new business.

Factory costs remain high

In April, China’s producer price index moderated for a fourth-straight month, rising 8% year-on-year. That was still above Reuters’ forecast for a 7.7% increase.

Within PPI, purchase prices rose far more quickly than so-called factory gate prices — the price of goods sold from factories for further manufacturing or sale to distributors.

That’s an indication that cost pressures are unevenly distributed across industries, said Bruce Pang, head of macro and strategy research at China Renaissance.

He said that means different businesses will face different kinds of impact on their profit margins.

There’s an “urgent need” for monetary and fiscal policy to provide targeted support for companies seriously affected by the pandemic, Pang said in Chinese, translated by CNBC.

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China’s central bank and other authorities have announced a number of measures to support growth in the last few weeks, although the scale of those measures has generally disappointed markets.

“The Covid lockdowns have eroded the effectiveness of policy easing, and muted demand more than supply,” Morgan Stanley’s Chief China Economist Robin Xing and a team said in a note Tuesday.

In late April, the firm cut its GDP target for China to 4.2% based on expectations that Covid controls will disrupt supply chains will last longer. That’s down from the prior forecast of 4.6%.

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