Consumer prices rise in China as Covid spurs food stockpiling

Prices of fresh vegetables rose 24% year-over-year in April, as consumers stockpiled them in preparation for potential stay-at-home orders. Pictured here is a delivery driver for a Alibaba Hema Fresh supermarket in Beijing on May 10, 2022.

Jade Zhao | Afp | Getty Images

BEIJING – China’s consumer and producer prices rose more than expected in April, according to data from the National Bureau of Statistics released on Wednesday.

The CPI rose 2.1% last month compared to a year ago, buoyed by higher prices for energy and fresh vegetables. The reading beat expectations of a 1.8 percent increase in a Reuters poll.

The April number was also the highest since November’s reading of 2.3% and well above the 18-month average of 0.9% consumer price inflation. The official target for China’s CPI for 2022 is “about 3%”.

“The main driver was higher food prices due to higher transportation costs and restocking demand from more stringent Covid restrictions,” Goldman Sachs analysts said in a report on Wednesday.

“On an annual basis, we expect CPI inflation to rise and PPI inflation to decline based on underlying effects,” the report said. “CPI inflation may decline sequentially in the near term as inflationary pressures from food prices may ease as the COVID situation in China improves.”

Since March, mainland China has tightened travel restrictions and imposed stay-at-home orders in many parts of cities to contain the worst outbreak of the Covid virus in the country since early 2020. The controls have prevented many factories from producing at full capacity or moving goods between suppliers and customers.

Fresh vegetable prices rose 24% year-over-year in April, while fresh fruit prices rose 14.1% over that period. Pork prices, a major contributor to China’s CPI, posted a relatively rare 1.5% increase from the previous month, versus a more moderate year-over-year decline of 33.3%.

Fuel prices for transportation are up 28.4% from the previous year, reflecting the recent rise in oil and commodity prices.

sluggish consumer demand

However, China’s high CPI does not mean that local residents face the same The pressure that the Americans do.

Consumer prices in the United States are at their highest levels since the early 1980s, even when food and energy are excluded. The April number, due out later on Wednesday, is expected to stay close to It saw an 8.5% increase over decades in March.

In China, excluding food and energy prices, the CPI rose 0.9% in April compared to a year ago.

In the longer term, analysts warn that overall consumer demand in China remains low due to uncertainty about future income.

Some companies even lowered prices to attract buyers.

Companies have cut prices at the fastest pace since May 2020, “with a number of companies cutting their fees in order to attract new business amid muted demand conditions,” a statement from the April Caixin Services PMI – a monthly sentiment survey – said.

A similar survey of manufacturers found that despite a sharp rise in the cost of production, selling prices rose only modestly as companies tried to remain competitive and attract new business.

Factory costs are still high

In April, China’s producer price index declined for the fourth consecutive month, rising 8% year over year. This was still higher than the Reuters forecast for an increase of 7.7 percent.

Within the PPI, purchase prices rose much more rapidly than what are called factory gate prices – the price of goods sold from factories to further manufacture or sale to distributors.

This is an indication that cost pressures are unevenly distributed across industries, said Bruce Pang, head of macro research and strategy at China Renaissance.

This means that different companies will experience different types of impact on their profit margins, he said.

In Chinese, translated by CNBC, Pang said there was an “urgent need” for monetary and fiscal policy to provide targeted support to companies seriously affected by the epidemic.