Thu, 09 Apr 2020

China's Inflationary Pressures Rising Amid Outbreak

Voice of America
19 Feb 2020, 23:35 GMT+10

Plagued by the COVID-19 coronavirus outbreak, China's inflationary pressure will continue to pick up this month after January's consumer price index (CPI) expanded at its fastest pace in more than eight years, analysts say.

That, they add, will weigh on the livelihood of the country's hundreds of millions of migrant workers and the jobless rate as the outbreak continues to show no signs of easing.

Latest statistics from the National Bureau of Statistics (NBS) showed that China's CPI spiked to 5.4% in January, up from a 4.5% gain in December and its highest level since October 2011.

Within the index, pork prices jumped 116% while overall food prices increased 4.4% month-on-month, according to the bureau.

Rising inflation

The rise of CPI last month was mainly due to pork prices (which have risen continuously the past six months as a result of the swine flu), increased demand for the Lunar Near Year and the coronavirus outbreak, according to the bureau.

Analysts say the CPI spike isn't a short-term phenomenon.

Looking ahead, extended city lockdowns and transport restrictions due to the virus outbreak have depressed domestic demand especially in the service sector, which will likely drive prices down, said Liao Qun, chief economist at China CITIC Bank International Ltd.

But overall, surging pork prices, panic buying and delayed resumption of business operations to weaken supply will continue to push prices up if the outbreak isn't effectively contained soon, he added.

"The [coronavirus] outbreak will be a major factor in February to drive prices and the CPI up. The gain may be mild since the Lunar New Year buying has stopped this month. However, [the CPI] will remain at a high gear, at around the 5% level," the economist said.

Migrant workers affected

Consumer price hikes will seriously hurt more than 200 million migrant workers in China, many of whom remain holed up at home while factories stay closed during the coronavirus outbreak, Liao said.

Zou Zhanhai, a migrant worker on an oil rig in Hebei province, further north of Beijing, said that he now lives on his savings and will cut back buying although prices of food he usually buys still remain stable.

"I still stay at home. There's no work to do. We can only restart work once the lockdown ban is lifted. I will get paid if I work. But no work, no pay. I, too, worry about getting sick if I return to work too early. Food prices remains stable since the government bans on price hikes," Zou told VOA.

Zou said he hopes the outbreak can be contained as soon as possible to ensure steady incomes for him.

The possibility that businesses may consider automation to cut back the workforce during times like this worries many migrant workers, especially those who live on daily pay.

Worsening jobless rate

China CITIC Bank's Liao express concerns that if the outbreak protracts for a long-than expected period of time, the survival of many businesses in China may be threatened.

That will further worsen the nation's jobless rate, he said.

Wang Zhangcheng, head of the labor economics institute at the Zhongnan University of Economics and Law, agreed, saying that small- and medium-sized businesses (SMEs) are particularly vulnerable.

The longer SMEs remain shut, the bigger chance that they may be forced to close down permanently, which means permanent job losses, the professor said.

"The SME sector has absorbed the most workforce [in China]. They have a relatively lower technical [skill] structure and limited resource to install automatic equipment to replace manpower. They may be forced to go bankrupt [if the outbreak persists]. So, the jobless rate is expected to go up," Wang said.

Amid a slowing economy, China's official urban unemployment rate slightly rose to 5.2% in December.

Stimulus policies

During a State Council executive meeting, chaired by Chinese Premier Li Keqiang on Thursday, China vowed to make efforts to keep employment and agricultural production stable.

A series of policies will be rolled out, including temporary cuts on employees' social insurance payments and deferred payments to their housing provident fund, the state-run China Daily reported.

"In advancing both epidemic control and economic and social development, one pressing task is to stabilize employment. It is important to promptly introduce policies to bolster businesses, especially SMEs. Sound development of such businesses is vital to stable employment," Li was quoted as saying.

In provinces and municipalities other than Hubei, most SMEs would be eligible for the waiver before June while bigger companies will see them halved before April, the report added.

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