China Faces Risk of Sharp Food Price Surge Due to Floods and COVID-19

[Image source=EPA Yonhap News]

[Asia Economy Reporter Park Sun-mi] Concerns are growing over a sharp rise in food prices due to floods sweeping through southern China and the spread of COVID-19.

According to statistics from the Chinese Ministry of Commerce cited by CNBC on the 15th, the price of agricultural products in China rose 1.2% in the week from June 29 to July 5 compared to the previous week. Prices also increased by 0.8% in the week from July 6 to 12. Previously, the National Bureau of Statistics of China announced that food prices in June rose 11.1% compared to a year earlier, and the continued rise in food prices in July is fueling concerns about an increase in China's Consumer Price Index (CPI).

CNBC reported that since food prices directly affect social stability, the government is closely monitoring food prices. Nevertheless, the current atmosphere where prices continue to rise could pose a significant challenge to the Chinese government.

In June, China's CPI rose 2.5% year-on-year, up only 0.1 percentage points from the previous month (2.4%), but the market expects the food price increase to continue for some time, which could lead to a further expansion of the CPI increase.

The floods that struck the southern region amid the COVID-19 spread are making it more difficult to manage food supply and demand. In southern China, there has already been a phenomenon of pork hoarding. In Jiangxi Province, concerns about the re-spread of African Swine Fever due to flooding have led to pork hoarding, causing prices to surge by more than 70% in a short time.

Lu Ting, Nomura Securities' Chief China Economist, explained, "Due to the difficulty in food supply caused by floods in southern China, China's CPI inflation rate in July is expected to rise to 2.7%." However, there is also a possibility that the base effect from last year's sharp CPI rise in the second half due to African Swine Fever could limit a significant year-on-year increase.

Meanwhile, the heavy rains sweeping through southern China have resulted in the worst flood damage since the great flood of 1998. So far, at least 141 people have died or gone missing due to the floods, 29,000 houses have been destroyed, and the direct economic damage has been estimated to exceed 86 billion yuan.