Little chance of pork price rises after the pig cycle peaks

On the 9th, the National Bureau of Statistics released the July 2016 national Consumer Price Index (CPI) and Producer Price Index (PPI). The data showed that the CPI rose 0.2% month-on-month and 1.8% year-on-year;; the PPI rose 0.2% month-on-month and fell 1.7% year-on-year. Heavy rainfall had a big impact on vegetable prices, prices of fresh foods fell back, and as the climate factor fades, vegetable prices will tend to stabilise; the “crazy pig cycle” has peaked, and there is little chance of pork price rises.

On the 9th, the National Bureau of Statistics released the July 2016 national Consumer Price Index (CPI) and Producer Price Index (PPI). The data showed that the CPI rose 0.2% month-on-month and 1.8% year-on-year; the PPI rose 0.2% month-on-month and fell 1.7% year-on-year. Consumer prices rose month-on-month, while the year-on-year increase edged down; producer prices turned from falling to rising month-on-month, while the year-on-year decline continued to narrow. Analysts believe that for some time to come, prices will remain stable and deflationary pressure is not great; although manufacturing is still declining somewhat, signs of bottoming out are fairly clear, with a certain degree of recovery.

Heavy rainfall has a big impact on vegetable prices, fresh food prices fall back

On a month-on-month basis, the CPI rose 0.2% in July. Yu Qiumei, a senior statistician at the Urban Survey Department of the National Bureau of Statistics, interpreted the July price data as showing three main features:

First, heavy rainfall had a relatively large impact on fresh vegetable prices in some areas. By region, fresh vegetable prices in Anhui, Hubei, Hebei and Beijing rose 16.2%, 14.3%, 13.3% and 12.8% month-on-month respectively.

Second, summer factors led to seasonal rises in some service prices. Affected by the increase in summer travel, air ticket and travel agency fee prices rose 12.1% and 6.5% month-on-month respectively, together contributing 0.13 percentage points to the month-on-month rise in the CPI.

Third, prices of some fresh foods fell back. Pork prices turned to a decline of 2.1% after three consecutive months of month-on-month rises, while prices of fresh fruit and eggs continued to fall month-on-month. The three together contributed 0.1 percentage points to the month-on-month decline in the CPI.

As the climate factor fades, vegetable prices will tend to stabilise

In some farmers' markets in Shandong, it is currently the season for vegetables to change over, and combined with recent continuous rain, local vegetable output has decreased, with supplies mainly relying on vegetables shipped in from elsewhere, causing prices to rise somewhat.

In this round of vegetable price changes, leafy vegetables saw the largest increases. Taking rapeseed greens as an example, according to the average price changes of major foods in 50 cities published by the National Bureau of Statistics once every ten days, in the three periods of July they rose 11.4%, 5.7% and 12% respectively compared with the previous period, clearly higher than the price changes for meat and eggs. Vegetable traders feel such changes most keenly. A vegetable trader in Shandong said: “The biggest price rises were for leafy vegetables, things like chives, which went up by half.”

Experts point out that the southern regions, where flooding was relatively severe, account for only about 20% of the country's vegetable output, so a trend reversal in vegetable prices is unlikely, and as the climate factor fades, prices will tend to stabilise.

"Crazy pig cycle" peaks, little chance of pork price rises

In addition, pig prices, which took off at one point this year, have begun to peak and fall back. Taking pork hind leg meat as an example, according to the average price changes of major foods in 50 cities published by the National Bureau of Statistics once every ten days, in the three periods of July they fell 1.1%, 1.1% and 0.8% respectively compared with the previous period, topping the list of food price declines.

In May this year, the live pig purchase price in Jining soared to 10.8 yuan/jin, reaching a nearly 5-year high. From late June, live pig prices gradually fell back, from 10 yuan/jin to below 10 yuan in early July, and then to 8.9 yuan/jin by the end of July. Many farmers had hoped to make a profit under the guidance of sustained super-high margins to make up for losses in previous years, but unexpectedly the “crazy pig cycle” was no longer glorious, and in just two months, they earned 300 yuan less per pig.

Pan Jiancheng, deputy director of the China Economic Monitoring and Analysis Center of the National Bureau of Statistics, said that fluctuations in pork prices are mainly fluctuations in supply, while everyone's consumer demand for pork is fairly stable. So once pork supply is established, it is unlikely to suddenly become scarce in a short time. Now that the sign of pork prices peaking has formed, then as it goes on, the possibility of prices rising further is not great.

PPI decline narrows, foreign trade exports basically stabilise

In addition, the PPI, that is, the Producer Price Index, continued its trend of a narrowing decline. On this, economist Yang Chengzhang believes that both ex-factory product prices and fixed prices of energy and raw materials have rebounded fairly substantially. There are probably two factors. First, real estate sales have recently been booming, and real estate investment has grown fairly steadily. At the same time, commodities fell sharply in the first quarter, and futures prices rebounded substantially, and under such circumstances, prices of steel, nonferrous metals and coal recovered to a certain extent, driving the PPI to stabilise to some degree.

Combined with the profits and value added of industrial enterprises, Yang Chengzhang believes that a conclusion is basically gradually emerging, namely that although China's manufacturing is still declining somewhat, signs of bottoming out are already fairly clear.

Data released by the General Administration of Customs on the 8th showed that in July, China's total import and export value was 2.09 trillion yuan, down 0.9%. Of this, exports were 1.22 trillion yuan, up 2.9%; imports were 873 billion yuan, down 5.7%; and the trade surplus was 342.8 billion yuan, expanded by 34%. On this, Hu Min, a researcher at the Chinese Academy of Governance, believes that China's exports have basically stabilised, continuing a development trend of steady progress, and the effects of earlier policies have already shown.

Falling private investment is the reason for downward price pressure

Data shows that since April, the CPI has fallen back for 3 consecutive months. Hu Min, a researcher at the Chinese Academy of Governance, said that the CPI maintaining a downward trend and the PPI's decline narrowing are in line with general market expectations.

Zhao Xijun, vice dean of the School of Finance at Renmin University of China, pointed out that the slowdown in investment growth, especially the relatively rapid decline in private investment, is the reason for the recent downward pressure on prices. He predicts that for some time to come, prices will still remain at the current stable level.

Because the CPI has long been at a relatively low level, the PPI has fallen year-on-year for 53 consecutive months, and foreign trade activity is sluggish, some people are worried that China's economy is under deflationary pressure.

On this, Zhao Xijun pointed out that the price trend alone cannot reflect a state of deflation. Taking into account factors such as rising incomes and good employment performance in China's economy, as long as measures such as stabilising investment, reducing costs and cutting excess capacity are implemented well, deflation will not occur.