Disinflation resumed in December with consumer prices surprising to the downside. Headline and core both registered a 1.3% y/y gain, a decline from 1.5% and 1.7% respectively in November. In constant tax terms the decline was a little faster. On the producer price side there is scant evidence of any inflationary pressure. Although headline output prices edged up, core output prices - which are more closely correlated with CPI - ticked a little lower.
The strong upswing in Chinese consumer price inflation in November has a very straightforward explanation. The swine flu epidemic and the devastation this has inflicted on Chinese pig herds – reducing total numbers by over 40%. Indeed, meat prices are up 74% yoy, driven by pork which is now up 110% compared to the same period last year.
Consumer prices remained steady in June with prices actually falling m/m, which kept the y/y rate at 2.7%. The backdrop would have been more encouraging had swine flu not taken its toll on meat prices while fresh fruit and vegetables have also soared over the past few months.