China’s consumer prices hit a six-month high as Covid prompts locals to stock up on food

Prices for fresh vegetables rose by 24% year-on-year in April as consumers replenished to prepare for potential home orders. Pictured here is a delivery driver for Alibaba’s Hema Fresh supermarket in Beijing on May 10, 2022.

Jade Gao | Afp | Getty pictures

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

The consumer price index rose by 2.1% last month from a year ago, strengthened by an increase in energy and fresh vegetables. The reading exceeded expectations of an increase of 1.8% according to a Reuters survey.

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

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

“In year-on-year terms, we expect CPI inflation to rise and PPI inflation to fall on base effects,” the report said. “Sequentially, CPI inflation may be subdued in the short term as inflationary pressures from food prices may ease with the improved Covid situation in China.”

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

Prices of fresh vegetables rose by 24% year-on-year in April, while prices of fresh fruit rose by 14.1% during that time. Pork prices, a major contributing factor to China’s CPI, showed a relatively rare increase of 1.5% from the previous month for a more moderate decline of 33.3% compared with the previous year.

Fuel prices for transport rose by 28.4% from a year earlier, reflecting the recent rise in oil and commodity prices.

Sluggish consumer demand

Factory costs are still high

In April, China’s producer price index slowed for the fourth month in a row, rising 8% year-on-year. It was still above Reuters’ forecast for an increase of 7.7%.

Within PPI, purchase prices rose much faster than so-called factory gate prices – the price of goods sold from factories for further production or sale to distributors.

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

He said this means that different companies will face different types of impact on their profit margins.

There is an “urgent need” for monetary and fiscal policy to provide targeted support to companies that are severely affected by the pandemic, Pang said in Chinese, translated by CNBC.

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