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China's factory inflation hits 17-month low as pressures ease

China's factory inflation hits 17-month low as pressures ease

FILE PHOTO: A worker walks past steel rolls at the Chongqing Iron and Steel plant in Changshou, Chongqing, China August 6, 2018. REUTERS/Damir Sagolj/File Photo

BEIJING: China's factory-gate inflation eased to a 17-month low in July, defying global cost pressures as slower domestic construction weighed on raw material demand, although consumer prices picked up pace, driven mostly by tight pork supplies.

The producer price index (PPI) rose 4.2 per cent year-on-year, the National Bureau of Statistics (NBS) said on Wednesday (Aug 10), after a 6.1 per cent uptick in June and missing analyst forecasts for a 4.8 per cent increase.

China's producer price growth has slowed from a 26-year high hit in October last year, giving policymakers some leeway to stimulate the flagging economy even as central banks elsewhere scramble to hose down rampant inflation with aggressive interest rate hikes.

"Factory gate inflation will remain on a downward trajectory throughout the rest of the year amid a further drop in commodity prices, easing supply bottlenecks and a higher base for comparison," Zichun Huang, China Economist at Capital Economics, said in a research note.

In a sign of the slowing momentum, PPI fell 1.3 per cent month-on-month, its first monthly decline since January, with the biggest falls in the price of metals and petrochemicals.

In annual terms, coal mining and washing industry prices rose 20.7 per cent, slowing 10.7 percentage points from June, while the oil and gas extraction industry jumped 43.9 per cent, down 10.5 percentage points, according to a separate statement from NBS.

Input prices slumped in July from June, China's official purchasing managers' index showed last week, due to a decline in energy and raw material costs and pointing to an eventual fall in producer prices.

The world's second-biggest economy has slowed considerably and narrowly escaped a contraction in the second quarter, weighed by strict COVID-19 controls, a distressed property market and cautious consumer sentiment.

The consumer price index (CPI) increased 2.7 per cent from a year earlier, the fastest pace since Jul 2020 but missing forecasts for a 2.9 per cent gain.

The main driver of consumer prices is food inflation, which rose 6.3 per cent year-on-year, speeding up from a 2.9 per cent uptick in June.

Driving the broader food surge were pork prices, which shot up 20.2 per cent year-on-year, reversing a 6.0 per cent decline in June as production slowed.

Core CPI, which excludes volatile energy and food prices and is a better gauge of underlying inflation, remained soft, rising just 0.8 per cent, slower than the 1.0 per cent rise in June.

The pickup in consumer inflation has complicated policymakers' deliberations over how to prop up slowing growth.

The prospect of an across-the-board interest rate cut in the short term is seen as low, given existing global inflationary pressures and interest rate hikes in other major economies, said Bruce Pang, a chief economist at Jones Lang Lasalle.

Source: Reuters/st

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