Rising food prices pushing inflation in China

10 September 2015

Sharply rising prices in China has pushed up inflation to a one-year high in the world's second largest economy.

The consumer price index (CPI) rose unexpectedly to 2 per cent in August from a year ago, mainly due to higher food prices and not due to a pick up in economic activity.

Moreover, the producer price index (PPI) is down 5.9 per cent, which marked its 42nd month of decline in a row.

Deflation fears in China has been increasing as manufacturers continued to cut prices.

The decline in the PPI came as the biggest drop since the global financial crisis in 2009 due to declining commodity prices and slumping demand.

According to economists, the continuing fall in producer prices posed the risk of spreading to consumer prices.

"The change in PPI is very worrying. It could affect corporate profitability, which in turn could affect consumption and the economy," said Li Huiyong, economist at Shenyin & Wanguo Securities, BBC reported.

Meanwhile pork prices, which weighed heavily on consumer prices in China, were up from 16.7 per cent last year to 19.6 per cent in August, while vegetable prices increased from 9.7 per cent to nearly 16 per cent.

"A sharp fall in pig numbers in recent months will continue to put upward pressure on pork price inflation," said Julian Evans-Pritchard, China economist at research firm Capital Economics, BBC reported.

On a monthly basis, consumer prices in August were up 0.5 per cent, according to the National Bureau of Statistics (NBS).

According to NBS statistician Yu Qiumei, the pickup was due to higher food prices including vegetables and pork, IANS reported.

Producer price index, which measured wholesale inflation, fell 5.9 per cent year on year in August, the NBS said.

The government aimed to keep consumer inflation at around 3 per cent for 2015.

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