18 July 2017
China Sourcing Update: Major Price Indicators (Jun 2017)
- CPI growth stays steady in June
The year-on-year growth rate of China’s consumer price index (CPI) stayed flat at 1.5% yoy in June, which was in line with market expectations (see exhibits 1 & 2).
The reason for the stabilization of the CPI growth in June was that a slower decline in food prices was offset by a smaller increase in non-food prices. The year-on-year growth in vegetable prices, a major driver of China’s inflation, improved markedly from minus 6.3% in May to 5.8% in June. Consequently, the year-on-year growth in the food component in the CPI picked up from minus 1.6% in May to minus 1.2% in June. Meanwhile, the year-on-year growth in the non-food component in the CPI edged down from 2.3% in May to 2.2% in June, largely due to slower price increases in transportation and health care services.
Looking ahead, we believe that the food deflation will slow further and even disappear in the near term, as the recent flooding in southern China is likely to lead to higher food prices; meanwhile, we expect the non-food inflation to ease further in the foreseeable future as the recent declines in domestic ex-factory prices will be translated into weaker non-food prices. Overall, in our view, the CPI growth is likely to rise slightly and stay below 2% yoy in the coming couple of months.
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