Chinese inflation picks up on the back of higher food prices

  • Chinese consumer prices grew by 2.3% in the year to August, the fastest increase since February.
  • Higher food prices contributed to the acceleration.
  • Producer price inflation moderated, growing by 4.1% from 4.6% in the year to July. This is seen to be a reasonable lead indicator for global inflationary trends.

Chinese inflationary pressures continued to lift last month, driven by firmer food prices.

According to China’s National Bureau of Statistics, consumer prices rose by 2.3% in the year to August, the fastest increase since February this year.

It was the third consecutive month that the year-on-year rate increased, and higher than the 2.2% pace that had been expected by economists.

In August alone, prices jumped by 0.7%, the fastest increase in over a year.


“Rising food inflation was the key driver of higher inflation,” said Kevin Xie, Fixed Income Quantitative Strategist at the Commonwealth Bank.

“Protracted bad weather, including heavy rain and typhoons in the coastline provinces, caused fresh vegetable, fruit and egg prices to rise notably in August.

“Pork prices surged 6.5% because reports of African swine fever reduced supply.”

Reflective of those temporary factors, food prices rose by 1.7% over the year, a steep increase from the 0.5% level reported in July.

Non-food inflation rose by 2.5% from a year earlier, up from 2.4% in July, driven by a 19.4% surge in fuel prices.

Excluding both food and energy prices, core inflation remained near 2%, below the 3% level loosely targeted by the People’s Bank of China (PBoC).

However, despite core inflation remaining well below the PBoC’s target, Xie doesn’t expect that, in isolation, will prompt the bank to ease monetary policy settings further.

“The PBoC is not an inflation targeting central bank in the same way as central banks in advanced economies,” he says. “Inflation below the ‘target’ is acceptable.”

While consumer price inflation continued to accelerate, something Xie believes will continue in the months ahead on the back of firmer food price, upstream price pressures actually moderated with producer prices increasing by 4.1% over the year, down from 4.6% in July.

“Lower oil prices in August reduced price pressure in upstream industries,” Xie said.

Looking ahead, he expects producer price inflation will likely stabilise or even increase a touch in the coming months due to production cuts in some industrial sectors and increased fiscal spending from the Chinese government.

Chinese producer price inflation is often regarded as being a lead indicator for global inflationary pressures, demonstrating a reasonable relationship to both US import prices and developed market consumer price inflation readings.