Buoyed by higher prices for non-food products, China’s consumer price inflation was likely continued to rise in June. However lower food prices, particularly for pork, may have offset this to some extent. We believe that lower food prices, particularly for pork, may have offset this to some extent. The dynamic in consumption recovery is likely to have supported the prices of non-food components. Rising commodities prices may have contributed to the raising of the prices of consumer goods to an extent.
Data published today, however, shows that China‘s annual inflation rate unexpectedly fell to 1.1% in June 2021 from an eight-month high in May and market expectations of 1.3%, in between sharp declines in food costs (-1.7% vs. 0.3% in May) as pork prices fell faster. At the same time, the cost of non-food items was unchanged (1.7% vs. 1.6%), with prices remaining higher for transport and communications (5.8% vs. 5.5%); clothing (0.4% vs. 0.4%); rent, fuel and utilities (0.9% vs. 0.7%); health (0.3% vs. 0.2%), household goods and services (0.3% vs. 0.4%), and education, culture (1.5% vs. 1.5%). On a month-to-month basis, consumer prices unexpectedly fell 0.4% in June, the fourth consecutive month of decline, following a 0.2% drop in May and compared to forecasts of a flat reading.
Food prices have probably contributed to dampening core CPI inflation on a year-on-year basis due to lower pork prices. Wholesale pork prices fell 49% year-on-year in June, more than the 34% drop in May.