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Consumer inflation rises at high pig prices



Pigs in their pen on a farm on the outskirts of Chengdu, China's southwestern Sichuan Province, August 2, 2005.

Peter Parks | AFP | Getty Images

China's producer prices fell most for more than three years in October, as the manufacturing sector weakened by declining demand and a blow from the Chinese-American customs war, which strengthened the case for Beijing to keep the stimulus coming. [19659002] The Producer Price Index (PPI), seen as a key indicator of corporate profitability, fell 1

.6% in October from a year earlier, marking the steepest decline since July 2016, data from the National Bureau of Statistics (NBS) shows on Saturday. Analysts had tipped a 1.5% contraction for PPI.

By contrast, China's consumer prices rose at their fastest pace in almost eight years, driven mostly by an increase in pork prices as African swine fever ravaged the country's pig herds.

Some analysts say that the CPI increase may be a concern for politicians who are looking to introduce measures to increase demand.

However, core inflation – which excludes food and energy prices – remains modest.

Factory deflation is consistent with other indicators showing shrinking production activity in October, with the Official Procurement Management Index (PMI) indicating a six-month contraction.

While Washington and Beijing are working to complete the first phase of a phased trade agreement, many analysts are wary of the potential back and forth following the sudden collapse of previous talks in May. Chinese manufacturers, meanwhile, are expected to face continued pressure from existing tariffs.

Several US tariffs on China are set to take effect December 15, although officials from both China and the United States said this week that they have agreed to return the tariffs on each other's goods if a "phase one" trade agreement becomes finished.

On Friday, however, President Donald Trump said he has not agreed to the withdrawals that China has sought.

The more than year-long trade war has cost China $ 35 billion as the United States has cut Chinese imports, which has raised prices for American consumers, according to a US study published Tuesday.

China, for the first time since 2016, cut interest rates on the one-year loan to medium-term loans. However, the Chinese authorities have been relatively restrained in providing incentives, and the cut was only 5 basis points.

However, rising consumer inflation raises the headaches of policy makers who are capping calendar to meet Beijing's annual growth target as the world's second-largest economy slows to the lower end of a 6% -6.5% range for 2019.

October Consumer Price Index (CPI) rose 3.8% from a year earlier, most since January 2012, beating analysts' expectations to 3.3%.

The rise was largely driven by a steep rise in pork prices and other meat after African swine fever killed a large part of China's pigs. Pork prices more than doubled year-on-year in October, according to the statistics agency.

"Although we expect the People's Bank of China (PBOC) to maintain its policy easing, we believe there is an increased risk of a wage price spiral amid rising pork prices and the emissions effects of other food prices," analysts at Nomura wrote in a note November 1.

"Thus, the PBOC could potentially be more reluctant to provide high-profile political incentives in the coming quarters to avoid fuel inflation expectations," the analysts said.


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