Due to food prices continued to decline, the year-on-year growth in consumer price index (CPI) in May is likely to keep dropping slightly from last month. But there’s sign showing rebound in pork price, prices may recover in the future.
With temperature getting higher in various places since May, there’re sufficient supplies of vegetables, leading to decline in prices of edible agricultural products. In terms of different categories, prices of vegetables and meat saw decline to different extents and particularly pork price went down significantly. As of May 20, average live pig price and ratio between prices of pork and foods in 22 provinces hit a new low since 2015.
Based on the above analysis, the growth in food prices based on a monthly basis is expected to move down by about three percentage points this month, according to Lian Ping, chief economist from the Bank of Communications. Non-food prices will be stable on the whole during the same period. However, price of refined oil product prices in China embraced the highest increase in May since this year, which is expected to push up non-food prices to 2.2 percent from last month. Meanwhile, carryover effect came at 1.34 percent this month, 0.11 percentage points higher than in last month. Therefore, the CPI may grow by 1.6 percent year on year in May with the growth slightly lower than that in last month.
Although food prices were sluggish, many market institutions viewed that as drop in pork price narrowed slowly, product prices will pick up a little. Jiang Chao, chief economist from Haitong Securities, said that prices of pork and vegetables stopped plunging and rebounded last week. Food prices in the Ministry of Commerce and the Ministry of Agriculture plummeted by 2.5 percent and 3.1 percent on a monthly basis, respectively. Further decline in food prices will drag the CPI in May. CPI is predicted to fall to 1.6 percent in May but pick up in June. On the other hand, prices of means of production recovered in May. Ex-factory indexes of industrial products jumped to the highest level of the year. This means that producer price index (PPI) is expected to see remarkable rise in May and inflation will continue to diverse in the short term.
Pork price stood at 15.86 yuan per kilogram in 22 provinces on average in midMay, hitting the lowest level in several years, according to Sheng Xu, analyst from GF Securities. The breeding stock of live pigs fell from 341.53 million at the end last year to 334.39 million in April. The drastic decrease in both pork prices and breeding stock of live pigs attracted attention on period of pigs. The typical whole period of pig in China lasts about 3-4 years. At present, pig price growth is still slowing down. But based on the decline in breeding stock since March of 2017, it laggard transmission help stabilize pork price. At present, the pork price may be at the bottom.
“The year-on-year CPI increase is expected to climb slightly to 1.9 percent in May. Food may be still the laggard but decline in food prices on a monthly basis will narrow.” said Xie Yaxuan, analyst from China Merchants Securities.
Translated by Vanessa Chen