Wholesale price drop fuels fears of deflation

PUBLISHED : Thursday, 11 August, 2005, 12:00am
UPDATED : Thursday, 11 August, 2005, 12:00am

Wholesale prices of consumer goods on the mainland continued to fall last month, fuelling concerns about looming deflation.

Figures showing a 0.2 per cent year-on-year drop in consumer goods prices were released as part of the overall producer price index (PPI) for manufactured goods announced by the National Bureau of Statistics yesterday. The overall PPI increased by 5.2 per cent year on year last month.

Prices of durable consumer goods dropped by 3.1 per cent, while food prices were up 0.6 per cent, clothing up 2.3 per cent and articles for daily use up 2.9 per cent, the bureau said on its website.

Purchasing prices for raw materials, fuel and power were up 8.5 per cent - 0.9 of a percentage point lower than the increase recorded in June.

Central government agencies and economists have been locked in heated debate recently over whether the economy is facing the risk of inflation or deflation.

The consumer price index increased by 2.3 per cent year on year in the first half of 2005, but its growth has been slowing. The CPI grew by 2.8 per cent in the first quarter of the year and 1.7 per cent in the second quarter.

Last month's CPI figure could be released within days, but the price index for wholesale consumer goods is bound to be a significant indicator.

The People's Bank of China said inflationary pressures were still a factor in the economy, despite the slowdown in CPI growth.

Prices for oil products, such as petrol, diesel and kerosene, rose by between 18.3 per cent and 22.5 per cent.

Prices for other raw materials also rose sharply last month, with many items registering two-digit growth over the same period last year.

From January to July, producers' prices for manufactured goods were up 5.6 per cent compared to the same period last year, while purchasing prices for raw materials, fuels, and power rose by 9.7 per cent.

Economists fear that strong growth in the PPI will be eventually translated into a rise in CPI. However, this has yet to eventuate, with overproduction of consumer goods limiting manufacturers' ability to lift wholesale prices to match the increased cost of production.

The central government has forecast CPI growth of 4 per cent for this year.