China Economy

China producer price inflation steadies as demand remains strong

Manufacturing inflation stabilises on weaker commodity prices, but demand for raw materials may slow amid curbs on property construction

PUBLISHED : Monday, 10 July, 2017, 11:19am
UPDATED : Monday, 10 July, 2017, 11:19am

China’s producer price gains were maintained last month, signalling that demand in the world’s second-largest economy is maintaining pace for now, even in the face of regulatory curbs.

The producer price index rose 5.5 per cent in June from a year earlier, in line with the estimate in a Bloomberg survey, as well as the reading in May.

The consumer price index increased 1.5 per cent, less than the forecast of 1.6 per cent, the statistics bureau said on Monday .

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As inflation steadies on weaker commodity prices, regulators’ moves to curb excessive borrowing may erode momentum later this year. Signs of faltering demand for raw materials could become more tangible as strictures on real estate construction slow output.

For global central bankers hoping for an inflation bump that will help them meet targets, moderating price gains in China, the world’s largest trading nation, aren’t good news.

The data shows “yet another sign that inflation remains dormant in the world economy, despite pretty decent growth”, according to Rob Subbaraman, chief economist for Asia ex-Japan at Nomura Holdings in Singapore.

Rajiv Biswas, Asia-Pacific chief economist at IHS Markit in Singapore, said: “Producer price inflation has already declined from a rate of 7.8 per cent year-on-year in February to 5.5 per cent year-on-year by June as global raw materials prices have moderated. A further slowdown in producer price inflation is likely in coming months.”

Producer prices in mining moderated to 18.3 per cent from 22.7 per cent in May. Manufacturing price gains picked up to 5.4 per cent in June from 4.6 per cent the previous month.

Michael Every, head of financial markets research at Rabobank Group in Hong Kongs, said: ““It’s all about PPI and it’s all about how long until PPI is negative year-on-year again. This month is surely just a holding action in that regard.”

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Raymond Yeung, greater China chief economist at Australia & New Zealand Banking Group in Hong Kong, said: “Low inflation allows the central bank to take inflation away from its target list. It is obvious that 2017 will be another year the actual CPI undershooting the official target of three per cent.”