Will Fed’s cuts feed into higher pork price in China?

By Hu Weijia Source:Global Times Published: 2019/10/31 21:53:40

Photo: IC

Is there a "butterfly effect" linking interest rate moves by the US Federal Reserve (Fed) with pork prices in China?

The "butterfly effect" is a concept proposed by American meteorologist Edward Lorenz, who showed how small events could have an outsized consequence.

Interest rate cuts by the Fed come as soaring pork prices in China are pushing up the nation's consumer inflation. Admittedly, an obstinate swine flu epidemic that has wreaked havoc on pork supplies is largely to blame for the price surge.

But an increase in pork imports by China, albeit accounting for a small portion of the nation's total pork consumption, will inevitably put the nation under the pressure of imported inflation to be fanned by the Fed's rate cuts.

The price of pork, China's most popular meat, is a key metric in the daily lives of Chinese people. We must keep watch on the inflation rate and ensure that pork prices don't get out of hand.

According to data from the National Bureau of Statistics, pork prices soared 69.3 percent year-on-year in September, pushing China's consumer price index to 3 percent for the month - the highest reading in six years. 

The Fed on Wednesday cut interest rates for the third time this year in an effort to support the US economy. 

The cut, combined with other factors such as wage increases, could send the US economy into an inflationary spiral, leading to higher prices for consumer products from soybeans to meat. The impact will be felt elsewhere in the world, including China.

In September, China's pork imports surged 76 percent from a year earlier, according to Chinese customs data. 

China announced in September that it will exclude some agricultural products including pork from additional tariffs on US goods. If China and the US reach an interim trade deal in the coming weeks, pork shipments from the US to China will probably continue to surge. 

Rising pork imports help in easing supply strains in China but pricier pork, pushed up by the Fed's rate cuts, could almost negate the effect on pork prices of a supply increase. 

China must keep an eye on the price transmission process that may arise from pork imports when there are already public complaints in China over higher food costs.

It's possible that the interest rate cuts by the Fed will kick off a wave of global central bank monetary easing. 

Amid the global economic uncertainty, no one should overlook the excessive expansionary monetary policy in the Western world and the potential imported inflation pressure it has put on China.

However small the butterfly effect of Fed's rate cuts might appear, its consequence on pork prices across the Pacific is worthy of attention.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn


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