Chinese consumer price inflation accelerates in August, likely to rise further in months ahead

Chinese consumer prices have recorded widespread rises in August, which might extend into the coming months, noted ANZ in a research report. On a year-on-year basis, consumer price inflation accelerated to 2.3 percent from July’s 2.1 percent.

Consumption goods prices and food prices rose 1.8 percent year-on-year and 1.7 percent, respectively, their highest rise since February 2017. The recovery of these items might help the CPI extend its rise into the next few months.

The uptrend might also be strengthened by flooding in some agricultural regions and the outbreak of swine fever, which might lead to restrictions in the supply of vegetables and pork. Moreover, pork prices might continue with their recovery in the medium term. Pork prices saw a rise of 6.5 percent sequentially in August, a rise from 2.5 percent in July, driven by higher costs.

Meanwhile, PPI slowed in the month of August to 4.1 percent from July’s 4.6 percent. PPI is expected to stay solid, underpinned by strong prices of raw materials. Crude oil has become the main driver, given that West Texas Intermediate prices have risen to about USD 70 per barrel from below USD 50 last August. As seen in the PPI basket of China, the price index of crude oil and natural gas recorded a rise of 39.6 percent year-on-year. This might continue to raise the headline inflation the near future.

CNY’s recent depreciation might also hike import prices for raw materials. In the period between August 2017 and August 2018, the Chinese yuan weakened 2.5 percent, which puts upward pressure on imported materials, such as crude oil, iron ore, and so on. If the US dollar continues to be solid and the downward pressure on the CNY continues, this might continue to raise import prices.

The overall inflation outlook for China further strengthens the view that widespread monetary easing is not the PBoC’s policy choice, stated ANZ.

“As we stated, the central bank is adopting a credit easing stance, but they are likely to stay cautious about monetary easing, given the concerns on the CNY exchange rate. The current inflation outlook should further limit the possibility for monetary easing, in our view”, added ANZ.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was highly neutral at 33.1588, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -66.0088. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex