China inflation noses up in June on high food prices

Beijing: China's consumer inflation climbed up in June to the highest point in two years, official data showed Saturday, following rising food prices as meat costs spiked due to tighter supplies.

The world´s second-largest economy has largely been spared the impact of a global surge in food prices caused by Russia's war in Ukraine, but the relative

stability could be upended by the rising cost of pork -- a staple meat in the country.

In June, the consumer price index (CPI), a key gauge of retail inflation, rose 2.5 percent on-year in line with analyst expectations but stayed flat from May due to a price drop in most foods except pork.

"Prices of fresh vegetables, eggs, fresh fruit and seafood dropped... due to factors such as increased supply and improved logistics," said National Bureau of Statistics (NBS) senior statistician Dong Lijuan in a statement.

"Influenced by factors such as the stabilisation of the epidemic and increase in consumer demand, pork prices continued to rise by 2.9 percent."

In a sign of officials´ concern, authorities said this week they were considering tapping into the country´s pork reserves in a bid to rein in the cost of the meat after prices soared by almost a third on-year in late June.

China´s government keeps stores of frozen pork in warehouses and occasionally releases reserve meat to stabilise prices, especially during peak periods of demand like the Lunar New Year.

Pork prices have been hit hard in recent years after the country´s herds were ravaged by African swine fever, causing consumer inflation to spike.

"We expect CPI inflation to keep rising in the second half of 2022 as the domestic economy recovers from the lockdown in the first half," said Zhiwei Zhang, chief economist at Pinpoint Asset Management, in a note.

"The pork cycle has been the single most important driving force behind CPI inflation in China over the past 20-30 years."

Food and gasoline prices rose 2.9 percent and 33.4 percent respectively on-year, the statement said, reflecting the broader impact of the Ukraine war despite consumer inflation levels staying broadly even month-to-month.

This particularly affected the prices of fresh fruit and aviation tickets, which rose 19 percent and 28.1 percent on-year respectively.

Meanwhile, the producer price index (PPI) -- measuring the cost of goods at the factory gate -- rose 6.1 percent from a year ago, slightly below May´s figures but above analyst expectations of 6.0 percent.

Factory inflation has hovered at high levels in recent months as global commodity prices spiked, although costs eased in recent months as the flow of goods in industrial chains stabilised after domestic Covid-19 lockdowns were eased.

"Changes in international crude oil prices drove up prices in related domestic industries," Dong wrote, citing spikes in the cost of fossil fuel extraction and processing industries.

However, prices fell in steel, cement and related industries due to lower demand as infrastructure construction was hampered by recent domestic outbreaks.