China Food Prices Down; Energy Prices Soar

China had 1.5-percent growth in consumer prices over the past 12 months according to its October 2021 Consumer Price Index (CPI) report. The U.S. CPI showed 6.2-percent growth over the same period. 

The food component of China's CPI was down 2.4 percent over 12 months while its nonfood component was up 2.4 percent. By comparison, the food component of the U.S. CPI was up 5.3%. 

Source: China National Bureau of Statistics.

The decline in the food component of China's CPI is entirely due to the popping of China's pork price bubble. Pork prices in October were down 44 percent from a year ago. Most Chinese food prices rose by 2 percent or less over the past 12 months. Consumer prices for grain products were up just 0.9 percent. A handful of food items rose more than 5 percent: vegetables by 15.9 percent; eggs by 12.6 percent; fish by 8.3 percent; and edible oil by 6.4 percent. 

Energy commodities propelled the rise in consumer prices. The fuel component of China's CPI was up 31 percent from last year. The energy component of the U.S. CPI was up by a nearly identical amount: 30 percent.

China's inflationary momentum is concentrated in producer prices for energy and industrial commodities. China's October Producer Price Index (PPI) was up 13.5 percent. Ex-factory prices for coal were up 103.7 percent from a year ago and petroleum and gas were up 59 percent. Producer purchase prices for fuel were up 40.7 percent, ferrous metals were up 22.6 percent, and nonferrous metals were up 25.8 percent, and chemicals were up 24.9 percent.

Producer purchase prices for products of agricultural processing were up 2.6 percent from last year, and prices for processed food were up 2.7 percent. Producer purchase prices for textiles were up 8.5 percent, but purchase prices for clothing were up just 0.8 percent. 

China's pork prices have come down from the stratosphere. Purchase prices for hogs began their slide early in 2021. Hog prices bottomed out at 10.5 yuan per kg. in early October, then rebounded to 15.8 yuan later in the month. Hog prices are about half the prices reported a year earlier in October 2020 and about the same as in early 2019. Pork prices have followed the same path. 

Source: China National Bureau of Statistics industrial purchase prices.

China's corn prices surged in 2020 and early 2021, but the upward momentum dissipated over the course of this year. The surge of corn imports since last year probably cooled off the upward momentum in corn prices, and falling hog prices may have pulled corn downward. Feed use of wheat bolstered wheat prices slightly as corn prices rose above wheat prices early this year. In October, the corn price was once again slightly below the wheat price. In contrast, China's rice prices have been weak since the fall harvest began, and a number of provinces have begun purchasing both indica and japonica rice at minimum prices. 

Source: China National Bureau of Statistics industrial purchase prices.

What worries Chinese officials is the potential for rising fertilizer and fuel prices to pinch farmers' profit margins as they plant crops to be planted in 2022. 

Source: China National Bureau of Statistics industrial purchase prices.