Out-Of-Control Chinese Inflation Accelerates To 6.5%

Inflation in China really shows no sign of getting under control as the People’s Bank of China slow down its pace of tightening in the past 1 or 2 months.  The headline consumer price index (CPI) rose 6.5% on an year-on-year basis vs. 6.4% in June, and also above the consensus of 6.4%.  On a month-on-month basis, the headline CPI rose 0.5%, which is higher than the headline figure of 0.5% in June.

Looking at prices in different categories, food prices are still the driver here, as it rose 14.8% yoy, and within which meat prices rose 33.6% yoy.  Non-food prices, however, is rather more stable, rising 2.9% yoy only.  On a month-on-month basis, food prices rose 1.2%, which is still pretty much out of control if you annualise it, while non-food prices are 0.1% higher.  In particular, prices for meat products rose 4.7% on a month-on-month basis, suggesting that the efforts the Chinese government has put in to curb prices have not paid off.

On another note, the headline producer price index PPI rose 7.5% yoy vs. 7.1% yoy in June.

chart

Source: National Bureau of Statistics

This inflation report is even less assuring than the last month’s report.  Last month we actually saw food prices rose 0.9% on a month-on-month basis, and now we have 1.2% increase on a month-on-month basis, that means it is not getting any better.  If inflation fighting remains a top priority for the Chinese government, there is absolutely not reason why they can stop tightening monetary policy.  Yet they have pretty paused tightening, reflecting their fears that they will tighten too much and hard-land the economy.

The global macro risks out there right now will only make Chinese policy makers even more worried about slowing growth too much.  Amid the mess we are seeing right now in the developed economies, I suspect the probability that Chinese policy makers will tighten further may be declining slightly, even though it is absolutely necessary to tighten even further. 

This is a dilemma no central bankers would like to face…

This article originally appeared here: China: Inflation Further Accelerated To 6.5% In July
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

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