Business Financials

China factory gate inflation slows as commodity prices drop

China factory gate inflation slows as commodity prices drop

Factory price inflation eased in April, data showed Wednesday, fuelling concerns about a growth slowdown in the world’s number two economy and denting hopes for a pick-up a global reflation.

The reading follows a series of weak figures out of Beijing in recent months, including on trade and manufacturing, as the government tries to turn the country’s main growth engine from state investment and exports to domestic consumption.

The producer price index (PPI) rose 6.4 percent on-year, a sharp drop from the previous month’s 7.6 percent and February’s 7.8 percent — marking the first consecutive drop since July. It was also slightly short of forecasts for 6.7 percent in a Bloomberg News survey.

“The sharp rebound in producer prices over the past year has now run out of steam,” Chang Liu, a China economist at Capital Economics, wrote in a recent report. “We expect (producer price index) inflation to ease over the rest of 2017.”

Global commodity prices — particularly for metals and oil — sank last week to five-month lows as global demand falls off, led by the slowdown in key market China.

China’s economy, a vital engine of global growth, expanded 6.7 percent last year, the slowest rate in a quarter of a century. But a slight improvement in the past three months of 2016 provided signs of stabilisation.

The uptick in Chinese price growth in recent months had also fuelled hopes that it can export inflation around the world.

For years the global economy has been mired in tepid inflation or deflation which, if persistent, tends to be bad for industrial prospects and economic growth because customers delay purchases in hopes of getting cheaper deals in the future, starving companies of business and funds.

But Shen Jianguang, chief Asia economist at Mizuho Securities, said: “PPI has already peaked in China and it’s on the way down further from here.”

The consumer price index (CPI), a main gauge of inflation, hit 1.2 percent in April, up from a 0.9 percent gain in March, according to the NBS.

Two national holidays in April had driven up prices for air tickets, hotels, and tours, contributing to this month’s CPI increase, the NBS’s Sheng said.

PPI should continue to wane as authorities move to tighten economic policy, Julian Evans-Pritchard of Capital Economics said in a note, adding that CPI might rise slightly, but “should remain below two percent”.

Analysts warned the country’s first quarter growth of 6.9 percent would not be sustainable.

“Falling prices and destocking are reinforcing each other,” head of China economics at Macquarie Securities Larry Hu told Bloomberg, adding that “the Chinese economy passed its peak”.

–AFP