Will inflation scupper China’s rebound?
Front page stories about a looming food crisis have particular resonance at the moment for China. Just when Beijing is trying to engineer a soft landing for the economy, and stimulate some growth in the second half of the year, the spectre of price rises is back.
Aside from the usual concerns about the social impact of higher food prices, there is understandable concern that China’s easing may also hit another buffer.
First of all the facts. Soybeans – which are not a major CPI component in China, but are key to feeding the country’s vast stock of pigs – have spiked in recent weeks, thanks to a drought in the US. Corn is also at a high, and wheat has risen 50 per cent in just 5 weeks.
So far, there has been no sign of stress in China. In fact, Chinese CPI has continued to fall, and is comfortably within the government’s target range of 4 per cent. In fact, worries about possible deflation were raised after inflation dropped to 2.2 per cent in June.
But that could change, as this chart from HSBC indicates.
The knock-on effect of higher soybean prices is most likely to be felt in pork prices, as Zhang Zhiwei at Nomura explains...MORE
