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China's inflation could rise above target due to rising pork prices and swine fever

A hired hand feeds a sow, who recently gave birth to a new litter on Grand Canal Pig Farm in Jiaxing, Zhejiang Province, China.

STR | AFP | Getty Images

China's efforts to curb the spread of African swine fever in the pig population are "ineffective," according to research firm Capital Economics. Thus, inflation will rise above the target for the first time in nearly a decade next year.

The Chinese government's measures to curb the consequences of the disease will have only "marginal effects" High-ranking Chinese economist Julian Evans-Pritchard wrote on Thursday:

The Chinese government's intervention, the spread of African swine fever (ASF) curbing the impact on pig prices is proving ineffective. As a result, next year's inflation will rise above the government's target for the first time in nearly a decade.

The outbreak of swine fever, which was diagnosed last year, has hit the world's largest pork producer hard, in a country where meat is also a staple. In July, analysts at the Dutch bank Rabobank predicted a decline in Chinese pig production of about 40% over the previous year and estimated that China's herds of pigs could contract by half by the end of 201

9 compared to the previous year.

has pushed up pork prices. According to the Chinese Bureau of Statistics, pork prices rose 46.7% yoy in August.

"Intervention by the Chinese government to stem the spread of African swine fever (ASF) and reduce its impact on pork prices is proving ineffective," Evans-Pritchard wrote in the note. "Inflation will be above the government's target for the first time in nearly a decade next year."

Evans-Pritchard predicted that prices could rise by over 80% by early 2020 compared to the same period last year.

This will weigh on the Chinese consumer price index. Inflation could average 3.5% and peak at over 4% next year, he estimated. This is more than the average annual inflation target of 3.0% set by the Chinese central bank.

In March, China's consumer prices rose 2.3% in August on rising food prices – a six-month high.

2018, year-round Inflation rose 2.1%, below Beijing's 3.0% target.

China's measures do not work

Last week, China announced subsidies of up to five million yuan ($ 700,000) to grant – as a recent measure to increase pork production

These subsidies would be for construction used large pig farms. The authorities also said they would support large farms that would need to be relocated for environmental reasons and improve and expand waste treatment facilities.

"We should ensure the supply of pork by all means … and curb market speculation to actively increase production of alternative meat products and increase reserves of frozen pork," said Chinese Vice President Hu Chunhua at the end of August According to Xinhua News Agency.

A butcher chops pork on a market in Shanghai, China, on May 30, 2013.

Peter Parks | AFP | Getty Images

In the short term, however, China's efforts to stem the outbreak of swine flu will not do much good, Capital Economics noted, although they will increase production capacity in the medium term.

Subsidies to consumers and farmers are still too small to change the picture. The Strategic Pork Reserve could be used more aggressively, but it would be used up quickly as it would only take three to four days to feed it, "Evans-Pritchard wrote," and since China produces and consumes more than half of the pork in the world, it can not Pork supply is overseas, at least not without raising prices everywhere. "

Pork is the most consumed meat among Chinese consumers.In 2018, pork accounted for almost 64% of meat consumption in the country.

– Reuters contributed to this report.

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