Chinese consumer prices rose by an annual 4.4% in October as food price inflation accelerated to 10.1%, in line with a forecast made in a post a month ago.
The first chart shows the CPI for food together with a weekly index of product prices that was suspended in early October, perhaps because food inflation was becoming politically sensitive. Global prices – as measured by the CRB spot foodstuffs index – have stabilised in recent weeks. This and official price suppression efforts may prevent a further rise in annual CPI food inflation in November.
Looking further ahead, the CPI for food rose steeply between November 2009 and February 2010, implying a possible fall in annual inflation by early 2011. It is normal, however, for price increases to accelerate into Chinese New Year and global pressures may persist as the Federal Reserve moves ahead with "QE2". CPI food inflation, in other words, may stabilise at around the current level but is unlikely to fall much.
Headline CPI inflation, meanwhile, could rise further as other prices accelerate. The non-food CPI rose by only 1.6% in the year to October but correlates with producer prices, which are picking up. Surging input costs suggest that the annual PPI increase will climb to 10%, in which case non-food CPI inflation could reach 2.5% – second and third charts. Assuming no change in food inflation, this would push the headline CPI rate up to about 5% (food has a one-third weight in the basket).
