China: CPI inflation slightly higher – Nomura

Analysts at Nomura note that China’s CPI inflation edged up by 0.2pp to 2.1% y-o-y in July (Consensus: 2.0%; Nomura: 1.8%; Figure 3), slightly higher than the average in H1 (2.0%) and above the 2017 level (1.6%).

Key Quotes

“Both food and non-food price inflation rose by 0.2pp in July, taking food price inflation to 0.5% y-o-y (H1: 1.2%; 2017: -1.4%) and non-food price inflation to 2.4% y-o-y (H1: 2.2%; 2017: 2.3%).”

“The continued rise of food price inflation was mainly led by pork and fruit prices in July, inflation of which rose by 3.2pp and 5.7pp, respectively, to -9.6% y-o-y and 0.4% in July.”

“In month-on-month terms, CPI inflation edged up to 0.3% in July from - 0.1% in June. Food price inflation climbed further by 0.9pp to 0.1% m-o-m, from a recent low of -4.2% in March, while non-food price inflation rose to 0.3% m-o-m.”

“We note that the ratio of hog-to-corn price (monthly average ratio of 22 provinces, released by the China Animal Agriculture Association, a Ministry of Agriculture affiliate) rose to 6.5x in July from 5.9x in June, exceeding hog producers’ breakeven level of 6x, implying upside pressure on pork prices may have eased somewhat.”

“We believe inflationary pressures should remain contained given already-high household leverage and weakening domestic demand.”