Chinese consumer price inflation (CPI) accelerated modestly in the year to May, according to data released by China’s National Bureau of Statistics (NBS) on Friday.
But while consumer prices edged higher, upstream price pressures continued to weaken — an outcome that may have implications for inflationary pressures worldwide in the months ahead.
According to the NBS, CPI rose by 1.5% in the 12 months to May, a result that was in line with market forecasts but above the 1.2% level reported in April.
It was the fastest year-on-year expansion since January this year, but still well below the 3% level targeted by the People’s Bank of China.
Over the year, non-food inflation grew by 2.3%, slightly below the 2.4% level of a month earlier. Food prices fell by 1.6% over the same period, courtesy of a 12.8% plunge in pork prices, a staple of the Chinese diet.
The annual drop in food inflation was also the smallest in the past four months.
By location, prices increased 1.7% in urban regions, well above the 1.1% pace seen in rural areas.
While CPI rose in the year to May, the NBS said that it fell by 0.1% during the month, reflecting that the move was driven by a high base effect rolling out of the data series, rather than a pick-up in price pressures.
Perhaps of more importance to the global inflationary picture, upstream price pressures continued to moderate.
Producer price inflation (PPI), also known as factory gate inflation, grew by 5.5% from 12 months earlier, well below the recent cyclical high of 7.8% seen in February this year.
It also missed forecasts for an increase of 5.7%, and was below the 6.4% level of April.
Over the month PPI slid by 0.3%.
Weaker growth in mining and raw materials prices, rising 22.7% and 11.1% from a year earlier, were major factors behind the deceleration in factory gate inflation during the month.
They grew by 36.1% and 15.5% respectively in the 12 months to February this year, reflecting strong increases in commodity prices.
That’s now starting to reverse as commodity prices move lower, and will likely continue for some time yet as weaker base effects are removed from the data series.
As a major exporter, the deceleration in Chinese producer prices has implications for global inflationary prices, feeding into import prices paid by other nations.
That may stymie efforts by central banks to lift inflationary pressures, mirroring the circumstances seen in recent years where falling export prices — largely as a result of weaker commodity prices but also soft demand — contributed to a wave of deflationary forces across the global economy.
Something that will be worthwhile watching in the period ahead, particularly should commodity price softness persist.