August 2, 2011

 

 

Soaring pork prices are part of broad-based inflation expected to ease in the second half of the year, and specific macroeconomic measures may not be needed to deal with them, a senior state economist said Monday (Aug 1).

 

"Macroeconomic policy can do little about the 'hog cycle' and usually should not respond to it," said Yu Yongding, president of the China Society of World Economics and former official with the People's Bank of China.

 

Pork prices rose 57% from a year earlier in June, contributing nearly two percentage points to the overall inflation rate and attracting headlines as the leading cause of price pressures.

 

Yu argued that a decline in inflation is already overdue based on historical monetary-growth data.

 

Sharply higher commodity prices and higher Chinese wages since 2009 were largely behind the "unexpected persistence of inflation," he said. However, monetary tightening and weaker external demand in the second half of the year have already begun to stabilise prices.

 

On a sequential basis, pork prices rose most steeply in the last two months, up 24% in mid-July from mid-May, outpacing all other major food categories including grain products, eggs and vegetable oils.

 

Commerce Ministry data showed pork prices have retreated slightly in the last two weeks amid government measures to stimulate hog production and release frozen-pork stockpiles.

 

Still, commerce ministry officials said last week that these government measures were only partly to be credited for beating back prices. Pork consumption, they noted, also happened to be in the low season.

 

The country's frozen-pork reserves currently amount to just 0.4% of annual consumption - not enough to cover even two days of use - although the commerce ministry has vowed to expand the stockpiles.

 

But in another acknowledgment that government measures may never fully catch up with market moves, China's top pricing regulatory agency two weeks ago warned that overproduction of hogs may result in a collapse in pork prices early next year.

 

Chinese farmers were already overstocking on piglets, and the resulting pork surplus may send prices into a sharp decline after the consumption-heavy Spring Festival in January, a top National Development and Reform Commission official said.