Advertisement
Advertisement
Food inflation slowed to a two-year low 2.3 per cent last month from 3 per cent in August. Photo: Xinhua

Slowing China inflation fans concerns over global growth

Wall Street and European stocks take a hit as gloomy data from China adds to rising worries over prospects for global growth

Don Weinland

Mainland inflation hit its lowest in nearly five years in the latest sign that the Chinese economy might be slowing and adding to the worldwide economic gloom, triggering a stocks sell-off in the US and Europe.

The rise in the consumer price index slowed to 1.6 per cent year on year, the National Bureau of Statistics said, the lowest since November 2009. The producer price index fell to minus 1.8 per cent in its 31st consecutive month of decline. The sustained fall shows Beijing is continuing to grapple with heavy oversupply in key sectors.

"In the coming months, we believe that risks to growth are still on the down side," HSBC said in a research note yesterday. "The inflation data suggests that there has been little improvement in domestic demand."

The falling prices of crude oil and steel put producer prices under pressure last month, NBS economists said yesterday.

JP Morgan said easing in global commodities prices had also put pressure on producer prices.

Falling prices for industrial products meant industrial profits would suffer as well. In turn, that would hurt investment in manufacturing, which reached a near 12-year low last month.

Growth in the main components of fixed-asset investment was 16.5 per cent, the slowest since 2002, Mizuho China economist Shen Jianguang pointed out, dimming hope of a recovery.

"This is a trend not likely to reverse soon," Shen said.

Gloomy mainland data has added to an increasingly poor outlook for the global economy.

US stocks fell as weaker-than- forecast economic data reignited a sell-off and dragged the Standard & Poor's 500 Index to the lowest level since May. Both the S&P 500 and the Dow Jones Industrial Average had declined 1.4 per cent in mid-morning trade.

Adding to Wall Street's concerns about global growth was poor data at home. Retail sales fell 0.3 per cent last month, worse than an expected 0.1 per cent decline, while producer prices fell for the first time in over a year.

In Europe, the FTSE 100 and Dax each fell about 2.5 per cent. Germany's 10-year government bond yield dropped to as low as 0.81 per cent.

The rate on 10-year Treasuries fell 15 basis points to 2.05 per cent, after dropping below 2 per cent for the first time since June 2013.

Weak mainland inflation has raised questions about whether the central government will soon use broader easing measures to enliven growth.

Stronger measures for boosting economic growth could hinge on credit data for last month, likely to be released this week, with some economists predicting lower-than-expected new loans.

The outlook on Beijing's response to the inflation data was mixed, however.

"I don't think it will significantly affect the way policymakers are thinking," said Mark Williams, the chief economist at London-based Capital Economics, adding consumer price inflation was driven by food costs.

Food inflation declined to a two-year low 2.3 per cent from 3 per cent in August. It was, however, the main driver of inflation last month. Non-food inflation eased to 1.3 per cent.

The government was in "crisis-prevention mode", Shen said. That could lead to more easing policy by the end of the year, such as cuts in banks' reserve requirement ratios and deposit interest rates, he said in a note.

This article appeared in the South China Morning Post print edition as: Growth fears as inflation slows to 5-year low
Post