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China's Consumer Inflation Soars to Highest Level in Years -- Update

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11/08/2019 | 10:52pm EST

BEIJING -- A doubling of pork prices last month sent Chinese consumer inflation to its highest level in nearly eight years, constraining Beijing's ability to stimulate the economy as growth continues to slow.

China's consumer-price index rose 3.8% in October from a year earlier, the National Bureau of Statistics said Saturday -- higher than a median forecast of 3.5% by economists polled by The Wall Street Journal, and far outpacing September's 3.0% reading.

As it has all year, October's jump in consumer inflation was fueled by a rise in hog prices, the fastest on record, amid an outbreak of the deadly African swine fever.

Soaring pork prices lifted overall food-price inflation to a more-than-11 year high, as consumer demand drove up prices for pork alternatives including eggs and other meat products.

Even as the surge in food prices limits Chinese policy makers' stimulus options, prices of nonfood items and factory-gate prices continued to show signs of softness, pointing to weakening demand in the world's second-largest economy. Nonfood price inflation moderated further to 0.9% in October, from 1.0% in September.

China's producer-price index dropped deeper into deflationary territory in October, falling 1.6% in October from a year earlier, more than economists' median forecast of a 1.5% decline. Producer prices fell 1.2% in September from a year earlier.

Falling producer prices are expected to squeeze profit margins at China's industrial companies, which have already been struggling to cope with tougher environmental rules and reduced orders amid the protracted U.S. trade fight.

Given the continued surge in pork prices, Liu Xuezhi, an economist at Shanghai-based Bank of Communications, predicted headline consumer inflation could top 4% in the coming months, but called on policy makers to act.

"The softness in nonfood consumer goods and PPI deflation shows that China's domestic demand was still weak. That means pork-driven inflation shouldn't be the reason for the central bank to stay on the sideline," Mr. Liu said.

Mr. Liu acknowledged, however, that monetary easing could end up channeling more money into the food sector, further inflating pork prices and complicating Beijing's efforts to rein in the cost of living while supporting economic growth.

Government officials have tried other tactics to combat the toll of African swine fever, a highly contagious virus that is lethal to pigs but not to humans.

China this year has ramped up imports of pork and other meats. But analysts question whether it is enough to fill the shortage in a country that is both the world's largest producer and consumer of pork.

Grace Zhu

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