Pork prices in China have soared since the beginning of the year, rising 24.1 percent year-on-year in the first quarter. Pork prices have long been seen as a barometer for China’s economy as the Chinese are among the world’s top pork consumers and production and supply of the meat may to some extent reflect how the economy is performing.
However, the recent surge in pork prices was directly caused by a decrease in pig slaughtering, so it is quite different from previous rounds of price surges and probably less related to the overall national economic situation.
Pork prices are susceptible to a boom-and-bust cycle. The recent surge in prices probably belongs to the same rising price cycle that started in March 2015. It is quite likely that prices will rise significantly in the first months of this year and then stabilize at a relatively high level for the rest of the year.
Moreover, the recent price surge was basically caused by tight supply. This is in contrast with what happened in the past when prices were not only affected by supply but also by the pace of economic growth as well as monetary supply. When the economy booms and monetary supply remains ample, more resources may flow to the pork production sector.
The robust growth of China’s economy in the past few years led to rising incomes and upgrading of the overall consumption structure. It also fueled pork consumption and resulted in tighter pork supply.
Although the Chinese government has rolled out policies to stabilize the economy and made greater efforts to support the poor, signs of economic recovery have been weak and the possibility of high economic growth for this year is very small. Therefore, the recent surge in pork prices has occurred even though economic growth is just stable and rapid growth is unlikely.
The previous rounds of surges in pork prices also happened when monetary supply expanded quickly. But as the economy has entered a new normal of slower growth since 2014, monetary supply has remained stable. Studies have shown that there is a time lag in the impact of monetary supply on prices of agricultural products such as pork, but monetary supply has been stable for the past two years, so it is unlikely to have been a significant factor in the rise in pork prices.
The previous rounds of price surges also added considerably to inflationary pressure. The recent rise may to some extent affect inflation, but its impact will not be that significant. Instead, the impact of vegetable prices on the Consumer Price Index, a main gauge of inflation, has been greater than that of pork prices in recent months.
Meanwhile, the possibility that the recent rise in pork prices may induce a price surge in agricultural products is very small. Therefore, the recent rise of pork prices may not fully reflect how the economy is running.