Analysis: China pork prices to hog global indicator limelight

Thu Jan 5, 2012 8:04pm EST
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By Nick Edwards

BEIJING (Reuters) - The price of pork in China could soon rival U.S. payrolls as the world's most watched economic indicator.

International investors are increasingly focused on domestic demand in the world's second-largest economy as their key measure of global economic health.

And there are few better ways to gauge that demand than by tracking staple food prices that directly hit discretionary consumer spending -- a sector of economic activity that typically generates 40 percent of China's annual GDP growth.

Lower or even just slower food price rises are a gift to consumers, says Carl Weinberg, chief economist at High Frequency Economics in New York .

"I don't think China has anything like the recession risk that people seem concerned about and I don't think they need any stimulus," Weinberg told Reuters.

Weinberg's calculations suggest that Chinese consumers enjoyed at least a 1.8 percent increase in real disposable income between July and November as consumer price inflation eased from a three-year high, with a boost to discretionary spending of 0.9 percent.

The implication is that China's factories will ramp up output to meet rising discretionary spending power, making slower increases in food prices the most important factor boosting GDP growth and aggregate demand.

"The slowdown of food prices is a massive economic stimulant," Weinberg says. "(It) will generate more economic stimulus than any government programme of monetary policy change ever could."   Continued...