China’s CPI at Nearly a 8 Year High Due to the Devastation in the Pork Industry

Matty-Sways

China's economy is in danger as inflation soars toward 3% on the back of rising energy and food prices.

There may be serious dilemmas in China’s economic future as its Consumer Price Inflation is at an 8 year high due to devastation in the pork industry that has pushed the CPI to 2.9%. The last time this occurred was back in 2011 when the Chinese economy was exploding compared to growth at its slowest pace in three decades in 2019.

Despite the GDP increasing as estimated 6.2% in 2019, slowdown pressures are likely to worsen this year, while the impact of African swine fever could keep pork prices high and recent tensions in the Middle East could drive up energy prices. The Swine Fever forces China to halve the pig population resulting in a 43% rise in the price of pork. The im crease in the primary meat of Chinese diets, appeared to increase prices in every industry even hairdressing as merchants sought to keep up with the rising food costs.

It may get worse for China as this year the biggest uncertainty is oil. Fan Lei, an economist at Sealand Securities, warned that while last year the leading price driver was pork, “this year the biggest uncertainty is definitely oil.” A 10% increase in oil prices would probably drive up China’s consumer inflation by 0.2 to 0.3 percentage points. While consumer-inflation gauge measures food prices heavily it fails to sufficiently capture bigger demands on household spending. Things could get worse as households are accumulating more pork for this month’s Lunar New Year holiday.

Policymakers don’t feel like they can fight the current slowdown as the country's decision to turn on the money pumps will undermine waning consumer confidence. For the year, the inflation rate nearly touched the 3% threshold set by Beijing. The central bank said in November that it would seek to keep inflation expectations in check as it increases efforts to promote growth.

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