(Yicai Global) Aug. 9 -- China’s consumer prices increased at a slower clip for a third month in July as food became cheaper and more coronavirus cases emerged, while producer prices rose at the fastest pace this year due to costlier oil and coal.

The consumer price index, a main gauge of inflation, rose 1 percent last month from a year earlier, down from 1.1 percent in June and 1.2 percent in May, according to data released by the National Bureau of Statistics today. The producer price index, a measure of factory gate prices, jumped 9 percent, up from 8.8 percent in June and matching May’s increase.

The two indexes have diverged since May, underscoring the shaky foundations for recovery in aggregate demand, according to Wen Bin, chief researcher of China Minsheng Bank. The “scissors-like gap” is due to fierce competition in downstream industries making it hard to pass on higher raw materials costs, he said.

The divergence will bring pressure to bear on downstream producers, so policy stability and continuity are essential as is a focus on stabilizing and expanding aggregate demand, Wen added.

Due to extreme weather such as typhoons and heavy rains in some regions, the production, storage and transportation costs of fresh vegetables soared, and prices rose 1.3 percent from a 2.3 percent drop in the previous month, Dong Lijuan, a senior statistician at the NBS, said in an analysis published today.

Pork supply continued to increase in July, leading to a 1.9 percent fall in the cost of the meat, but with the support of reserve pork purchases and storage policy, the decline was narrowed by 11.7 percent from the previous month, Dong said.

Zheng Houcheng, director of Yingda Securities’ research institute, told Yicai Global that the slowdown in CPI was driven by food items, including pork, and fuel refined from crude oil for use in transport.

CPI High

The CPI could peak again in the fourth quarter due to factors like non-food items, according to China Merchants Securities. Although extreme rainfall in Henan province, an important hog producer, has had a great impact on pork shipments recently, the impact on pig farming is limited, it said. Pork prices are expected to continue to run at a low level, and the CPI will have limited room for recovery.

Statistics from the NBS also showed that the PPI rose 0.5 percent month on month, with an increase of 0.2 percentage point from the previous month. Dong said that, from a month-on-month perspective, the commodity price stability policy seems to be having an effect.

Prices of steel and non-ferrous metals declined slightly. The prices in the ferrous metal smelting and rolling processing industry dipped 0.2 percent, while those of the non-ferrous metal smelting and rolling processing industry edged 0.1 percent lower. 

Due to high summer temperatures, demand boomed for thermal coal used to generate electricity to power air-conditioners, driving prices 6.6 percent higher. Meanwhile, rising international oil prices led to an increase in the prices of domestic petroleum-related industries, Dong revealed.

Although it is difficult to slow the year-on-year increase in the PPI significantly for the time being, the momentum for a sustained sharp rise has weakened. Analysis shows that prices of industrial products tend to fall back past the turning point as commodity prices drop after peaking. This upward trend still exists but has shown signs of weakness.

Editor: Peter Thomas