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December, 2018 5:26 AM



China inflation at 4-month highs

China inflation at 4-month highs

Consumer prices rose by 2.1 per cent in the year to July (forecast 1.9 per cent), up from 1.9 per cent in June.

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09.08.2018 05:06 PM

China consumer prices at 4-month highs
China inflation

China consumer prices: Consumer prices rose by 2.1 per cent in the year to July (forecast 1.9 per cent), up from 1.9 per cent in June.

China business inflation: Producer prices rose by 4.6 per cent in the year to July (forecast 4.4 per cent), down from 4.7 per cent in the year to June. 

What does it all mean?

Inflation in China remains in check. Consumer prices rose by 0.3 per cent in July following four consecutive months of deflation. The annual growth rate of 2.1 per cent was the equal highest since March, but remained well below the Chinese government’s target of “around 3 per cent” for 2018.

Food prices lifted in July. China is the largest global producer of pork. US tariffs of 25 per cent levied on pig feed, such as soybeans, is expected to increase hog farming costs in China. Pork prices rose by 2.9 per cent in July, rebounding after sharp declines in May (down 3.6 per cent), April (down -6.6 per cent) and March (down 8.4 per cent). Hot weather and flooding impacted the production and storage of fresh vegetables, pushing up prices by 1.7 per cent, but was more than offset by a decline in the price of fresh fruits (down by 3.7 per cent).

Fuel prices lifted by more than 20 per cent, pushing up non-food prices to 2.4 per cent over the year to July. Rising jet fuel costs boosted airline ticket prices by 14.5 per cent, while hotel accommodation lifted by 7.9 per cent due to strong summer holiday demand.

Business inflation decelerated from an annual growth rate of 4.7 per cent in June to 4.6 per cent in July, above market expectations for 4.4 per cent. Input prices lifted on the back of oil and gas extraction (up 42.1 per cent) and oil, coal and other fuel processing industry (up 24.6 per cent) costs. 

What do the figures show?
China Inflation

Consumer prices rose by 2.1 per cent in the year to July (forecast 1.9 per cent), up from 1.9 per cent in June.

Consumer prices rose by 0.3 per cent in July after falling by 0.1 per cent in June. Food prices rose by 0.1 per cent in July to stand 0.5 per cent higher than a year ago. Pork prices rose by 2.9 per cent in July, but were down 9.6 per cent over the year. Non-food prices rose by 0.3 per cent to stand 2.4 per cent higher than a year ago. Consumer goods lifted by 1.8 per cent and services goods rose by 2.5 per cent over the year to July.

Over the year, food, tobacco and alcohol prices rose by 1.0 per cent; health care prices rose 4.6 per cent; transportation and communication price rose 3.0 per cent; rent, fuel and utilities were up 2.4 per cent; education, culture and recreation prices increased by 2.3 per cent; household goods and services prices were up 1.6 per cent; clothing prices rose by 1.2 per cent; and other goods and services increased by 1.2 per cent.

Producer prices rose by 4.6 per cent in the year to July (forecast 4.4 per cent), down from 4.7 per cent in the year to June.

Over the year, the prices of raw materials were up by 9.0 per cent; the cost of processing was up 4.1 per cent; the means of production were up 6.0 per cent; extraction costs rose 13.4 per cent; consumer goods were up 0.6 per cent; food production prices lifted 0.7 per cent; clothing prices increased 0.7 per cent; daily use goods increased by 1.1 per cent; but consumer durables prices fell 0.2 per cent.

What is the importance of the economic data?

China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.

What are the implications for interest rates and investors?

The trade war shows no signs of abating. China announced additional retaliatory tariffs levied at 25 per cent on US$16 billion worth of US imports yesterday. Tariffs are expected to increase the cost of production in some industries and potentially weigh on corporate profits. Import prices are increasing as the Renminbi depreciates. And raw material input costs are elevated in the energy sector due to rising oil prices.

Consumer prices increased in July. Food prices are volatile and the lift in non-food inflation is largely attributable to seasonal demand. Prices are well contained for now, reflecting a softening of domestic demand in the first half of this year. But a “more proactive” fiscal policy, including tax cuts and infrastructure spending, combined with elevated consumer confidence could support economic activity over the next few months.

CommSec expects Australian official interest rates to be stable until 2019.

Published by Ryan Felsman, Senior Economist, CommSec
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