Rising pork prices prompt fear of inflation in China

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3 yrs ago, rising pork prices helped push inflation to a record high. Now, many Chinese are fearful that they are experiencing deja vu, as the price of pork rises, and threatens to exacerbate inflation concerns that have affected the World's 2ndlargest economy.

Pork prices have risen up for months now, as the consumer price index ( CPI ), the main gauge of inflation, rose by a 34-month high of 5.5% from a year earlier in May, the National Bureau of Statistics ( NBS ) said last Tuesday. The figure is far above the government's annual target of 4%.

NBS spokesman Sheng Laiyun attributed the rising inflation largely to an 11.7% rise in food prices, fueled by drought and flood in some farming regions.

He specifically blamed pork prices as the main cause, with an increase of 40.4% in May Y-Y, which contributed about 20% to the CPI growth.

Food prices account for nearly one third of the nation's CPI calculation, and pork prices make up a big part of food prices, said Li Tiegang, vice dean of School of Economics of Shandong University. "Higher pork prices will definitely drive up CPI," he said. Each 20% increase in pork prices results in a lift of 0.6 percentage points in CPI growth.

Data from the Ministry of Commerce ( MOC ) showed that pork prices have started trending up-ward since the end of May last year, when pork prices stood at 14.47 Yuan per kg, the lowest in Y 2010.

In the week ending June 12 this year, pork prices reached 22.52 Yuan per kg, up 55.6% from the bottom last year, closer to the historical high of 22.88 Yuan on February 8, 2008.

The ministry's spokesman Yao Jian said Wednesday that the continuous rise has resulted from reduced pig breeding and supply shortages due to low prices at this time last year and rising labor and feed costs.

From January to May, the average price of Corn was 2.26 Yuan per kg, up 11.2% from a year ago, and salaries for breeders rose more than 20%, the Ministry of Agriculture said in a statement on its website Wednesday.

To buy a piglet in May and raise it to a 100-kg hog requires 1,230 Yuan, which includes feed and labor expenditures, up 15.6% from a year ago, according to the statement.

Analysts forecast that inflation will pick up again in June to possibly around 6%, prompting the central bank to introduce further tightening measures.

The central bank decided last Tuesday to raise the reserve requirement ratio for the 6 time this year to contain the high inflation. The central bank also raised interest rates 2 this year.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

www.livetradingnews.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Commodities

Referenced Stocks: CPI , MOC , NBS

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