China inflation: factory-gate prices remain high but fall slightly as global commodity prices level off

·3-min read

Factory-gate price inflation in China remained high in June, data released on Friday showed, falling slightly from the near 13-year high a month earlier.

The producer price index (PPI), which reflects the prices that factories charge wholesalers for their products, rose by 8.8 per cent in June from a year earlier, down from a gain of 9 per cent in May, the National Bureau of Statistics (NBS) said.

This was in line with expectations, as a Bloomberg survey of analysts had predicted a rise of 8.8 per cent, and was largely attributed to a levelling off in global commodity prices.

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“The effect of ensuring the commodity supply and stabilising the price began to emerge in June, the supply-demand relations tended to improve and the price increase of industrial products slowed down to a certain degree,” said senior NBS statistician Dong Lijuan .

After reaching a 12-year high in May, producer price inflation dropped back in June as the rally in global commodity prices faltered

Julian Evans-Pritchard

China’s official consumer price index (CPI), meanwhile, rose by 1.1 per cent in June from a year earlier, down from 1.3 per cent in May, the NBS said.

This was just below the Bloomberg survey median, which had predicted a 1.2 per cent rise. The decline was largely due to a return to food price deflation as pork prices fell 13.6 per cent month on month thanks to a strong recent rebound in pig stocks.

Beijing has set a 2021 CPI growth target of around 3 per cent, compared with around 3.5 per cent last year.

“After reaching a 12-year high in May, producer price inflation dropped back in June as the rally in global commodity prices faltered. Consumer price inflation declined too, on the back of a sharp drop in pork prices. We think PPI inflation has already peaked and that CPI inflation will remain muted this year,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

Last month, central bank governor Yi Gang said consumer prices in China are basically under control and that they would fall and full-year growth would be below 2 per cent, well within the target.

China’s core consumer inflation rate, excluding volatile food and energy prices, rose 0.9 per cent in June compared with a year earlier, unchanged from May.

Food prices fell by 1.7 per cent from a year earlier in June, from a rise of 0.3 per cent in May.

The price of pork – a staple meat on Chinese plates – fell by 36.5 per cent compared with a year earlier in June.

Non-food prices rose by 1.7 per cent in June, year on year, up from a reading of 1.6 per cent in May.

“We think the latest decline in producer price inflation marks a turning point, with coal and metal prices likely to drop back over the rest of the year as the recent slowdown in credit growth and tighter restrictions on the property sector start to weigh more heavily on construction activity,” added Evans-Pritchard.

“Meanwhile, the plunge in pork prices is likely to be a drag on food inflation for a while longer. This should keep headline inflation below 2 per cent even if, as we expect, core inflation gradually returns to more normal levels. All told, concerns about price pressures in China look set to ease over the coming months, with inflation likely to settle at a level that is unlikely to trigger any shifts in monetary policy.”

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