Li & Fung China Sourcing Quarterly
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Part One: Major Price Indicators
1. China’s CPI growth further moderated on a year-on-year basis
The year-on-year (yoy) growth rate of China’s consumer price index (CPI)1 continued its downward trend in recent months, falling all the way from 6.1% yoy in September to 4.1% yoy in December. (See exhibits 1 & 2) Overall, FY11, China’s CPI growth was 5.4% yoy, up from 3.3% yoy in FY10. The deceleration in the CPI growth in recent months was due largely to the moderating growth of the food component, the CPI of which dropped from 13.4% yoy in September to 9.1% yoy in December.
On a month-on-month (mom) basis, the CPI growth dropped all the way from 0.5% in September to -0.2% in November, before rising to 0.3% in December. The rebound in the CPI growth in December was driven by the rise in vegetable prices, which could be associated with the seasonal fall in the supply of vegetables. Also noteworthy is that the mom growth of the CPI of the non-food component turned negative in December, suggesting that non-food inflation may have started to ease.
Looking ahead, we expect that the yoy growth of China’s CPI will continue to decline in coming months, due to the higher comparison base and the softening non-food inflation. In the longer term, however, we expect the CPI growth to stay high, driven by factors such as increasing food prices, spiraling labour costs, degradation of land and water resources, abnormal weather conditions and natural disasters, etc.
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