It was for a time a somewhat curious dilemma. When it rains it pours, they always say, and for China toward the end of 2015, it was a real cloudburst. The Chinese economy was slowing, dangerous deflation developing around an economy captured by an unseen anchor intent on causing havoc and destruction. At the same time, consumer prices were jumping where they could do the most harm.
The Chinese had a pork problem in 2015, an outgrowth of central state-injected imbalance. To put it simply, there had been before 2014 too many producers causing pork prices to fall, exposing many especially small firms to the backlash of oversupply, which then put China in no position to respond flexibly to an outbreak of disease. Pork prices toward the end of 2015 skyrocketed just as the economy could least afford the disturbance.
The result was, again, a somewhat curious divergence (shown above) between money and inflation. The PBOC caught in a eurodollar vise was in contraction mode while consumers faced the pig shortage as best they could. It wasn’t an easy time for anyone which is one major reason why by early 2016 Communist officials panicked into repeating textbook Economic measures they had largely sworn off not long before.
Three years later, nothing much has changed. It’s not pigs this time, however, it’s other foodstuffs (pork prices were down 2.4% year-over-year last month). The price of fresh vegetables, according to China’s National Bureau of Statistics, has risen by nearly 15% year-over-year in the country’s CPI basket, most of that over the last two months. For fruits, the increase is a little more than 10%. Those two categories alone contributed 0.52 points to the headline CPI’s 2.5% advance in September 2018.
The government has continuously blamed poor weather for restricting marginal supplies, therefore forming this bottleneck adding to the margins of the CPI via foods. The press release mentioned specifically “typhoons, heavy precipitation, and winds in some areas.” It seems consistent with CPI data that shows food prices rising at just a 1% annual rate in July, and then 1.9% in August followed by 3% in September.
