Chinese consumers are taking a lukewarm approach to commodity prices, which have dropped to their lowest in 14 years. At the same time, buyers know that the government could enforce counter-deflationary measures that might raise food prices.
China’s consumer price index (CPI) dipped 0.8% January 2024, year-on-year. This in spite of 0.2% and 0.3% consecutive monthly CPI upticks in November and December 2023, respectively.
The rapid yearly declines vis-á-vis slight monthly rises have confounded economists who had predicted a monthly price reboot of 0.4%. Instead, the monthly increment in December was only 0.1% after the minimal appreciation of 0.2% in November.
China’s economists had hoped for at least 0.5% yearly CPI, which would bring up prices and avoid looming deflation.
The worrying factor is that this is the fourth back-to-back consumer price depreciation beginning 2020, the lowest since 2009.
In 2023 and 2024, producer prices joined consumer prices in the fall, invoking deflation that might hurt Chinese consumers.
PPI Reprieve
It is good news to the government, however, that the producer price index (PPI) declined by just 2.5%, below forecasts of 2.6%.
China’s National Bureau of Statistics had gauged a 0.1% PPI drop for January 2024 from the December 2023 decline of 2.7%.
This is significant because producer prices ought to sink at a slower rate than the consumer equivalent to stabilize the markets.
Unlike consumer prices which are courting years of depression, producer prices are only in their 16th straight month of decline.
Pork Glut
The reprieve in the farm gate prices comes directly from oversupply in certain sectors of agriculture, such as pork.
A slump of 17.3% in pork prices between January 2023 and 2024 owes to China’s aggressive revamp of its pig sector. Hence, the country could manage to control production and restore farm gate prices in the future.
In November 2023, China’s retail pork prices dropped by 31.8% after production in Q3 2023 notched by 3.8%. The wholesale price in August 2023 was 23.17 Yuan ($3.22) per kg across China. The world’s second largest economy restored its hog population after quelling fears over African Swine Fever (ASF) threat.
Strategically, China has made similar production efforts in other economic areas in line with its vision for 100% self-dependence.