China CPI – Follow the Wet Market

HKTDC(香港易发局)sourced an Hong Kong Economic Journal EJ Insight(信报)article about measuring predicting Chinese inflation. See Article.

There are eight major categories in the CPI basket. They are food, clothes, tobacco and liquor, health and personal care goods, home appliances and maintenance, housing costs (mostly rentals), transport and communication, and expenses on entertainment, education and culture.

Influence in the CPI is dwarfed by food, which accounts for one third of the CPI.

If we follow the trend of food prices, we can feel the pulse of the CPI movement.

  • Prices of pork are on a downward trend in the past few months. This is because pork prices have been on a high level in the past two years, prompting many individual raisers to keep more pigs. And these pigs hit the market since the Spring Festival, greatly boosting supply and which will continue to cause a retail price drop.

  • Prices of vegetables also declined. Take cole for example. During the Spring Festival, a kilogram of cole, a widely-consumed vegetable in China, cost 12 yuan. It now costs 3 yuan per kilogram in Beijing. If you are a smart shopper, you can easily get a bargain of 2 yuan a kilogram.

  • The reason for the price decline is pretty much the same as in the case of pork. Warm weather has lifted northern China from the months-long chill and locally-grown vegetables have begun flooding the market, thereby pulling down prices. Apart from that, the government’s effort to subsidize farmers in their seed and fertilizer purchases has helped slash farming costs, benefiting end consumers as well.

  • The downtrend of pork and vegetable prices will persist for sometime, pulling down the CPI.

  • But the prices of some food items are going up and this is likely to offset the drop in the prices of pork and vegetables. Cooking oil saw the biggest prices increase as major edible oil producers raised their prices in March, citing costs of labor and raw materials.

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