China: Surging Food Prices Push Inflation to Highest in 10 Years

China's National Bureau of Statistics announced consumer prices climbed 5.6% y/y in July, the fastest pace in more than a decade, as food costs surged 15.4% due to a pig shortage resulting in higher pork prices and inclement weather destroyed crops. Economists were expecting an increase of 4.6% on average. Many economists believe the People's Bank of China [PBOC] will be forced to raise interest rates and reserve requirements at least once more this calendar year. Inflation averaged 3.5% year-to-date through July, ahead of the Bank's 3.0% target. Food is said to account for one-third of the consumer price index and Bloomberg reports meat costs jumped 45% y/y, while egg prices rose 31%. Two economists at Capital Economics in London said the mostly food-driven inflation will likely ease "once supply disruptions have worked themselves out." Still, with economic indicators at "alarming" levels, according to the PBOC's deputy international chief, monetary actions appear to be a matter of when, not if. The Shanghai Composite gained 1.5% to 4,820, renewing its all-time high.

Sources: Bloomberg
Commentary: Will Tomorrow Be Black Monday In China? Depends On the Headline Inflation Data • Morgan's China A-Shares Fund Suffering From Holding Other China Funds • A Look At China's Retail Environment
Stocks/ETFs to watch: Bond funds: SHY, IEF, TLT. Currency funds: DBV, FXE, FXY. China funds: CAF, FXI, PGJ

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