China's inflation data in May rose in anticipation. Rising food prices pushed CPI up to a 15-month high over the same period last year, while PPI rose slightly in the same month, and the "scissors gap" widened further. Because of the cyclical fluctuations in food prices, analysts generally expect that the year-on-year increase in CPI will gradually decline in the third quarter, but do not rule out the possibility of continuing to rise at the end of the year or even "break 3".
They argue that overall demand does not support sustained high CPI over the same period of last year and that inflation risks can be controlled as a whole. Despite uncertainties in Sino-US trade frictions and expectations of interest rate cuts from the Federal Reserve, the current inflation situation in China will not hinder the flexible adjustment of domestic monetary policy.
"The moderate rise in CPI is not only due to rising food prices, such as fresh fruit, pork and its substitute chicken and poultry, but also due to higher tail warping last year. In the second half of the year, pork prices will still rise, but the tail-up will fall, which can effectively hedge a part of it. Wang Jun, chief economist of Central Plains Bank, said that although it is possible to break 3% in the second half of the year in some months, it is more likely to be controlled within 3% throughout the year, which does not pose a major threat to economic operation.
He also said that the weakening of PPI should be paid attention to, and subsequent negative growth of the same proportion in individual months should not be excluded, but it is expected that with the increase of counter-cyclical adjustment, especially the sustained development of stable infrastructure, PPI will also have some support, and the possibility of falling into deflation in an all-round way is also not great. On the whole, monetary policy still needs to adhere to the basic pattern of stable aggregate but loose structure.
On Wednesday, China's National Bureau of Statistics announced that the consumer price index (CPI) in May rose 2.7% year-on-year, in line with the median forecast in Reuters'survey. The increase was the highest since February 2018, when it was 2.9%. Among them, food prices rose 7.7% year-on-year, the highest since January 2012 (then 10.5%) and non-food prices rose 1.6% year-on-year. CPI was flat in May, also in line with the median estimated by Reuters.
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