China hit by severe drought

China is currently hit by the most severe drought in recent decades, spanning 5 provinces and leaving 18 million people without adequate drinking water.

The drought is affecting China’s two leading sugar producing provinces. According to the Hong Kong Economic Times, sugar prices in Beijing are already close to historic high, at RMB5,400/ metric tonne. The price of rice in Kunming has also increased by 30%.

China is already seeing surging inflation due to its loose monetary policy. If the drought drives up inflation in food, the PBoC might be forced to tighten with more draconian measures.