Consumer prices in China are rising in January at the fastest pace in over 8 years

Consumer prices in China are rising at the fastest pace in more than eight years in January, while the spread of the coronavirus and the subsequent disruption of transportation across the country are likely to lead to additional price increases in the coming months.

Consumer prices in the world’s second-largest economy rose by 5.4% in January, with food prices rising at the fastest pace since 2008. But studies show that a sharp rise in prices is noticeable even before the outbreak deadly because of the expected surge in demand around the Chinese New Year and the effects of the African swine fever that killed millions of animals by slaughtering pork stocks.

The dramatically worsening situation with the coronavirus over the past 10 days has exacerbated the impact of these factors, with prices expected to continue rising rapidly. Not only will this harm domestic consumption, but it could also raise prices worldwide if transport interruptions in China have a negative impact on the supply of various manufactured goods and exported foods.

“The outbreak of the virus has rewritten the history of supply and demand in China, leaving supply at a relatively low level except for the medical sector, with demand also falling”, said Tommy Xie, an economist at Singapore-based Oversea-Chinese Banking Corp. “Prices are likely to continue to rise due to weak supply”, added he.

The rise in the Consumer Price Index is mainly due to the celebrations for the Chinese New Year and the damage caused by the coronavirus, and also because of the lower base last year since the holiday was falling in February 2019, according to a message from the National Statistics Bureau.

Factory downturns and closures will also affect foreign manufacturing or sales companies in China and could lead to higher prices for consumer goods in the US and elsewhere if the factories do not restart their operations soon.

Apple’s main iPhone manufacturing partner has told employees at its Shenzhen plant not to return to work on Monday when the extended break after the Lunar New Year is over, and the resumption of production depends on government policy.

Other multinational companies with a footprint in China are already experiencing disruption. Nike Inc has closed about half of its department stores in China, and rival brand Adidas AG also said it has closed a significant number of stores in China as a result of the epidemic.

Chinese farmers are experiencing serious difficulties as authorities ordered roadblocks in different cities and areas in an attempt to curb the spread of the disease. Roads for transporting animal feed and agricultural products were blocked.