Capital Economics is of the view that price pressures in China are rising, aside of the usual volatility in food inflation.

Data released earlier today showed that consumer price inflation edged down to 1.2 percent year-on-year in May from 1.5 percent in April. This was slightly weaker than most had anticipated but squarely in line with the firm’s expectations.

A fall in food price inflation, to 1.6 percent from 2.7 percent last month was responsible for the drop in the headline index. This was partly driven by pork price inflation, one of the key swing factors in food inflation over the past decade, which fell to 5.3 percent from 8.3 percent. The drop in food inflation masks a pick-up in broader price pressures. Non-food inflation edged up to 1.0 percent in May from 0.9 percent in April. In particular, upward adjustments to regulated gasoline prices helped narrow transportation costs to -1.3 percent from -2.3 percent in April.

Producer price inflation remained unchanged at down 4.6 percent on year, and Capital Economics’ forecast was down 4.5 percent. PPI is heavily weighted towards industrial inputs and has fallen deep into negative territory over the past year due to the fall in global commodity prices, the firm noted. “Looking ahead, we expect both measures of inflation to rebound over the coming quarters. A sharp fall in pig numbers in recent months will likely put upward pressure on pork price inflation,” said Julian Evans-Pritchard, Economist at Capital Economics.

More broadly, the sharp fall in global commodity prices during the second half of last year will soon provide a much weaker base for comparison that should push up both CPI and PPI, which ought to help assuage any lingering concerns over deflation, Julian said.