Since the financial crisis, like the rest of the world, China has experienced an era of excess capital caused by global monetary easing, at the same time this is also an era of low inflation. For most countries that have struggled to recover from the impact of the financial crisis, low inflation is good news, and it has prevented the country from hitting high inflation under the downward pressure of the economy. A small number of emerging market countries such as Venezuela, have experienced a crisis that demonstrates the harm high inflation can bring to a normal country.
China is lucky to be among low inflation countries. Although there is the of release of a large amount of money in the process of rapid urbanization and the debt economy, China's inflation has not risen significantly due to various factors, but has remained at a low level below 2% for a long period of time. The low inflation in China depends on a variety of factors, including the country's excess manufacturing capacity, its consumption upgrades and the increased consumption of services, as well as the rapid development and popularity of e-commerce, and the huge asset pool of real estate that absorbs a large amount of liquidity and resident wealth domestically.
However, can China always be under the condition of low inflation to survive the economic downturn? It does not seem to be that optimistic. The continuous tracking research conducted by Anbound's macro research team shows that the signs of rising domestic prices have emerged, and it is necessary for China to be vigilant concerning the impact of rising prices on people's livelihood.
According to the July statistics released by the Chinese National Bureau of Statistics, the July CPI (Consumer Price Index) rose by 2.1% year-on-year. Among these, foods rose by 0.5%, and non-food prices rose by 2.4%. Although the overall price is still within moderate range, it can still be observed there are some price fluctuations. The foods with large price fluctuations in July include 13.3% for lamb, 9.6% for pork, 11.7% for eggs; non-food products include household services that increase 5.6%, transportation fuels 22.2%, tourism 4.4%, and health care 4.9%. Under the pressure of trade war and economic downturn, many are concerned about inflation.
The current situation may be more serious. According to the monitoring of the Chinese Ministry of Commerce, from August 13 to 19, the national edible agricultural product market price increased by 1% compared with the previous week. Among them, the wholesale price of poultry products rose entirely, and the increase in eggs was the most significant at 7.3%. The average wholesale price of 30 kinds of vegetables was RMB 3.93 per kilogram, an increase of 1% from the previous week. The price of rapeseed, Chinese cabbage and cucumber was the highest, up to 8.5%, 7.8% and 7.6% respectively compares with the previous week. Wholesale prices of meat continued to rise, while sea products, edible oil and food declined slightly. Such is the average situation in China, while the fluctuations in various places are more intense. On August 20th, Ningbo's price inspection shows that the total commodity price of supermarkets this week rose by 3.71%. Among them, vegetables, fruits and eggs increased by 9.47%, 9.24% and 8.57% respectively. The statistics on August 9th in Anqing City show that the price of the nine vegetables listed for monitoring was RMB 2.57, an increase of 18.43% over the same period of last month. The increase of green pepper, cucumber, tomato, celery, potato and white radish reached 40.38%, 49.77%, 14.16%, 25.89%, 10.36% and 22.00% respectively.
The local residents' experience on prices is more intuitive. There are netizens in Weihai who publish the price of supermarket vegetables one by one to the Internet. Spinach was RMB 8.8 per kg, coriander RMB 12.8 per kg, shiitake mushroom RMB 14.8 per kg, crown daisies RMB 19.8 per kg; these means vegetables are more expensive than meat. The price of vegetables in Beijing is also rather high. Some residents point out that it is "2 to 3 times higher than the same period last year". The owner of the canteen at Anbound Beijing headquarters expressed that the price of some vegetables has nearly doubled recently, and it is hard for the canteen to survive with such high price for the vegetables. Although the main food prices are relatively stable, the price of eggs and vegetables has risen sharply, which has already affected the lives of the residents.
Fluctuations in non-food prices are equally worth of attention. Taking rental prices as an example, recently, Beijing's skyrocketing rental price has attracted widespread attention. According to a report by Shell Research Institute, rentals in Beijing rose by 2.6% in July 2018. From the perspective of the rental index, if non-comparable factors are excluded, in July 2018 the rent index rose by 10.7%. Rental hike not only happens in Beijing, but also in first and second-tier cities. Statistics from China's house price network show that there were 11 cities in July 2018 with rental hike of more than 20% compares with the previous year; these cities include Chengdu, Shenzhen, Chongqing, Tianjin, Hefei, Guiyang, Beijing, Guangzhou, Dalian Nanning and Harbin. The rise in rental has become an unbearable burden for many urban workers.
In addition to food and rental, the rise in prices of fuel and medical care is also particularly noticeable. In July, transportation fuels rose by 22.2% compares with previous year, of which gasoline and diesel prices rose by 22.7% and 25.1% respectively. As the main energy source for production and logistics, gasoline and diesel will increase the cost of all production and circulation chains, and this is something that cannot be underestimated. In July, the price of health care category rose by 4.9% compares with previous year, among which Chinese medicine, western medicine and medical services rose by 5.6%, 5.1% and 4.9% respectively. It should be noted that the overall rise in the prices of medicine, food, housing and transportation has begun to put pressure on the living costs of the residents.
Anbound points out that although the CPI shows that the rise is still moderate, yet the pressure of rising prices on the residents has emerged. The current international and domestic economic situation pressures may amplify the impact of rising prices and exacerbate the severity of downward pressure on the economy in China. Therefore, policy departments must be highly vigilant about the risk of rising inflation. At the end of July, the Political Bureau of the Central Committee of the CPC meeting proposed "six stabilities", referring to the stability in employment, finance, foreign trade, foreign capital, investment, and expectations. Anbound's research team believes that the cost of living should also be further stabilized, as stabilizing prices will ultimately stabilize the people's livelihood.
Final Analysis Conclusion:
The July CPI statistics does not seem to reflect the current actual situation of rising prices. Currently the signs of rising prices in China have appeared; the costs of medical, food, housing and transportation of the residents have begun to rise. China should pay attention on the impact of rising prices on the people's livelihood.
