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China Sourcing Update (Major Price Indicators) Dec 2016

  1. CPI growth edges down in December

    The year-on-year growth rate of China’s consumer price index (CPI)1 slowed from 2.3% in November to 2.1% in December, lower than market expectations (see exhibit 1 and 2). The slowdown in CPI growth in December was mainly attributable to a high comparison base in December 2015 and a slower increase in vegetable prices. The year-on-year growth in vegetable prices, a major driver of China’s inflation, fell from 15.8% in November to 2.6% in December. Consequently, the year-on-year growth in the food component in the CPI also dropped from 4.0% in November to 2.4% in December. Meanwhile, the year-on-year growth in the non-food component in the CPI rose from 1.8% in November to a five-year high of 2.0% in December, driven by the rise in prices of healthcare and transportation and communication. For 2016, China’s CPI growth was 2.0% yoy, up from 1.4% yoy in 2015, but was still below the government’s target of 3.0% set for the year. Going forward, we predict that the food inflation will stay low in the near term, due to the recent stabilization of pork prices and vegetable prices; and we expect the non-food inflation to stay around the current level in the near future. Overall, in our view, the CPI growth is likely to stay soft in the coming months.


  2. Ex-factory prices of industrial products go up further

    The year-on-year growth in China’s producer price index of industrial products (PPI) jumped from 3.3% in November to a five-year high of 5.5% in December, continuing the upward trend that began in September (see exhibits 3 & 4). On a month-on-month basis, the PPI went up by 1.6% in December, posting month-onmonth gain for six straight months. The rise in the PPI in the month was due largely to an increase in imported commodity prices boosted by a weaker yuan and a better supply-demand balance as the demand for industrial products recovered and the effects of de-capacity further materialized. Looking ahead, driven by the increase in prices of production inputs, the year-on-year growth in the PPI is expected to rise further in the coming months.

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Content provided by Fung Business Intelligence
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