(Bloomberg) -- China’s consumer inflation accelerated to the fastest pace in six months, driven by surging food prices, while producer prices escaped from near the deflation zone on a recovering economy.
- The consumer price index rose 2.5% last month from a year earlier after gaining 2.3% in March, while factory prices gained 0.9%, according to the National Bureau of Statistics. That compares to estimates of 2.5% and 0.6% respectively.
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- Food prices were up 6.1%, with prices for fresh vegetables up 17.4% and pork prices jumping 14.4%, the most since mid-2016
- China has slaughtered millions of pigs since August, when the viral African swine fever was first reported in China, pushing up pork prices
- Domestic demand is also recovering amid months of stimulus, which supported demand for commodities from copper to crude oil
- “The hog cycle could drive China’s headline CPI closer to 3 percent for the coming quarter but it will not constrain PBOC’s policy,” Robin Xing, chief China economist at Morgan Stanley (NYSE:MS), told Bloomberg Television. “On the PPI front we’ve seen some improvement on the rebound in the infrastructure demand.”
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- PPI rose for the second month and exceeded all economists’ estimates, soothing fears that it will sink back to deflation, which hurts corporate profitability
- “This is great news for China as it shows recovery is working, especially the PPI number," said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA in Hong Kong. “But the PBoC will clearly remain more cautious.”
- Still, domestic consumer demand is not yet robust. Core CPI, a gauge excluding the more volatile food and energy prices, pulled back to 1.7% in April from 1.8% a month earlier
- “Inflation pressure won’t be a big concern in China’s monetary policy this year” as long as the consumer price growth doesn’t hit the official target of 3%, said Yao Shaohua, an economist at ABCI Securities Co. Ltd in Hong Kong.