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The National Development and Reform Commission’s (NDRC) figures show that prices of pork in large and medium sized cities continue to rise according to Yicai. Prices have risen by 1.31% for the weak ended 22 August compared with the prior weak according to NDRC.
So it appears that the drought in the US as well as pest in China have pushed corn and soybeans prices high enough that the prices of that animal which feed on them, i.e. pigs, are on the rise, as expected. At the moment, we still think that the impact on headline inflation will be modest, and this round of food inflation is certainly not going to push headline inflation to the 4% yoy target within 2 or 3 months, not to mention that there is absolutely no inflationary pressure in non-food items, and we would argue that there is deflationary pressure there.
However, the timing of the increase of pork prices is unfortunate, in our view, as the Chinese economy has been slowing even more than we would have expected, and any rise of food prices, and hence upticks in headline inflation, will not be a welcome news as the market’s perceived room for monetary easing will be narrowed.
We continue to believe that the Chinese government and central bank will be hesitant in announcing aggressive stimulus if inflation ticks higher (even though the uptick might be small). Even though we believe that monetary policy at the moment is too tight, we suspect that the People’s Bank of China will not ease policy aggressively, at least for the time being.
This article originally appeared here: The rise of pork prices in China narrows the perceived room of policy easing
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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