China’s consumer price inflation in June hit the highest level in two years. It is analyzed that the phenomenon of stagflation, in which prices rise while the economy is stagnant, is occurring due to strong COVID-19 quarantine.
China’s National Bureau of Statistics announced on the 10th that the consumer price index (CPI) rose 2.5% in June compared to the same month last year. This is the highest record since July 2020 (2.7%) in 23 months. It beat the market consensus of 2.4%.
China’s CPI growth rate has remained at a relatively low level of less than 2% since its previous peak of 2.3% in November last year, but rose to the 2% range, reaching 2.1% in April and May, respectively. With transportation costs rising sharply due to the rise in international oil prices, the price of pork, which accounts for a large portion of the Chinese diet, has recently risen, putting a burden on the price of shopping carts.
Among the 30 major items that make up the CPI, transportation fuel costs soared by 32.8%. Among food items, fruits rose 19.0%, eggs 6.5%, and cooking oil 5.0%. Global food inflation is also emerging in China, with vegetables rising 3.7% and grains 3.2%.
Pork prices fell 6%. However, compared to -41.4% in March, -33.3% in April, and -21.1% in May, the decline sharply narrowed. Compared to the previous month, it rose 2.9%. Although Chinese authorities do not disclose the weight (weight) of CPI components, pork is estimated to account for the largest single item, accounting for about 2%. When the price of pork, which played a decisive role in China’s CPI stabilization trend, even jumped, some analysts say that price management in China is not as easy as in other major countries.
The producer price index (PPI), the wholesale price, rose 6.1% in June, down from the previous month (6.4%). China’s monthly PPI growth rate fell for the eighth month after hitting an all-time high of 13.5% in October last year. It is analyzed that this is the effect of the economic downturn and demand decrease due to the shock of the spread of COVID-19 and the lockdown.
Nomura Securities said, “The economic slump continues as the Chinese authorities insist on ‘zero corona’ and repeat strong controls such as lockdown.
Many countries in stagflation are putting up with a policy of embracing the recession by raising interest rates and starting with inflation. However, China is in a difficult situation to make a decision that will damage the economy of the common people ahead of this fall’s Communist Party Congress to decide President Xi Jinping’s third consecutive term. The real estate market, which accounts for more than 25% of China’s economy, could also be hit directly by a rate hike.
Beijing = Correspondent Hyeonu Kang hkang@hankyung.com