Global prices have skyrocketed, the US inflation rate of 8.6%, why is China’s inflation only 2.1% so low? | Blog Post

On the other hand, it is also related to the weight of goods and services that make up China’s CPI basket. Our country places more emphasis on food and clothing, while the United States places more emphasis on housing and transportation, the latter of which are more vulnerable to global energy prices and domestic currency conditions.

The weighting of China’s CPI basket has changed in 2021, although it has not been officially disclosed, but analysts at China Securities Co. estimated that the weight of Chinese food has risen to 18.4%, compared with 7.8% in the United States. In clothing, China’s share is 6.2%, compared with 2.8% in the United States.

Rent accounts for 16.2 percent in China, about half of the 32 percent in the U.S., while transportation accounts for 10.1 percent, down from 15.1 percent in the U.S., analysts said. In addition, the U.S. economy relies heavily on consumer goods imports, and China’s huge industrial capacity means my country has more room to deal with rising global commodity prices.

Why did China’s rising producer price index (PPI) not affect the CPI?

PPI and CPI used to have a strong correlation. If the prices of production materials rise or fall, consumer prices will rise or fall with them. In my country, however, this correlation has been weakening in recent years due to the hog and grain cycle. In May 2020, China’s PPI fell by 3.7%, after rising by 13.6% in October last year, but the domestic consumer price index (cpi) has remained relatively stable.

“China’s pig cycle has led to divergence in food prices and industrial product prices, with other reasons including lower downstream demand and increased competition,” China Securities Co., Ltd. said in a January report. Pork prices play a role in consumer inflation cycles plays an important role, with an estimated weight of 2.4% in the CPI basket. In the first five months of 2022, pork prices fell by 37% year-on-year.

Pork prices play an important role in China’s consumer inflation cycle.

Some believe that China’s low inflation rate is partly due to the sharp drop in domestic demand caused by the outbreak. Retail sales in China continued to contract by 6.7% in May, but the decline was less than the sharp 11.1% drop in April. At the same time, based on the importance of China in the global manufacturing industry, rising production costs were mainly absorbed by overseas buyers or producers after the outbreak of the epidemic in early 2020.

Can China Control Consumer Inflation?

So far, the country remains on high alert for inflation. China’s central bank governor Yi Gang said in April that the main goal of China’s monetary policy is to stabilize prices and employment.

From January to May this year, grain prices rose 2.2 percent year-on-year, while egg prices rose 6.8 percent, government data showed. Edible oil prices rose 3.7%, and vegetable prices rose 8.7%. At the same time, the price of gasoline in China is also rising due to the 68% year-on-year increase in international crude oil prices. Therefore, ensuring domestic food and energy supply is a key task at present.

Some analysts worry that China’s CPI could rise as crude oil and food prices soar. The World Bank estimates that Brent and wheat prices will rise about 40% this year from 2021.

The China International Finance Corporation said in a report on Tuesday that inflation in China was mainly affected by higher prices triggered by the conflict between Russia and Ukraine, lower external demand and a rebound in the yuan. “Domestic, a rising cycle in pork prices and a rebound in the economy will push up consumer prices, but the median level is likely to remain benign,” it said. It forecast a full-year gain of around 2.1 percent, still within its target range.