Coronavirus: China’s manufacturing prices plunge further in March, with consumer inflation easing

Frank Tang

China’s manufacturing sector continued to suffer from the impact of the coronavirus pandemic in March, as data released on Friday showed factory gate prices contracted at a faster pace last month.

The producer price index (PPI), reflecting the prices that factories charge wholesalers for their products, dropped 1.5 per cent year-on-year last month, according to the National Bureau of Statistics (NBS).

That was worse than the 0.4 per cent fall in February and the 1.1 per cent contraction tipped in a Bloomberg survey of analysts.

China’s consumer price index (CPI), meanwhile, rose 4.3 per cent from a year earlier, decelerating sharply from a 5.2 per cent gain in February, the NBS said. Analysts polled by Bloomberg had expected an inflation rate of 4.9 per cent.

China has brought the domestic outbreak of the coronavirus under control in recent weeks, allowing authorities to relax some of the draconian restrictions aimed at containing it and kick-starting the economy in the process.

On Wednesday, authorities lifted a lockdown imposed in late January on the central Chinese city of Wuhan, the initial epicentre of the outbreak.

However, with much of the world still grappling with the outbreak, export orders for Chinese manufacturers are slumping, raising fears about a second wave demand shock that could see China’s economic growth fall below 3 per cent in 2020.

“The divergence of consumer and producer price growth shows there is still huge pressure on businesses and the economy,” said Wu Qi, a senior fellow at Beijing-based think tank the Pangoal Institution.

China’s consumer inflation slowed in March to its weakest pace since a 3.8 per cent rise in October 2019.

Within the CPI, pork prices increased 116.4 per cent compared to a year earlier, down from the 132.5 per cent jump in February.

Prices for the staple meat – which is thought to be the single-largest element in the basket of consumer goods used to calculate CPI – started to soften as transport was gradually normalised, slaughterhouses resumed work and local governments increased sales of pork reserves, the NBS said.

Overall, food prices fell 3.8 per cent from the previous month but were 18.3 per cent higher than a year earlier.

Non-food prices rose 0.7 per cent from a year earlier, while consumer goods prices jumped 6.2 per cent and services prices increased 1.1 per cent. Core CPI, which excludes energy and food, edged up 1.2 per cent year-on-year.

While the decline in factory gate prices showed China’s recovery from coronavirus shutdowns still had some way to go, other economic indicators are starting to show signs of improvement.

Data last week showed sentiment among Chinese manufacturers bounced back strongly in March, though analysts warned that the rise mainly reflected the resumption of business in March after a miserable February, when the country was effectively shut down due to the coronavirus, rather than a return to normal economic activity.

The official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners in the world’s second largest economy – was 52.0 in March, up from an all-time low of 35.7 in February.

China’s non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – also recovered to 52.3 from 29.6 in February, another record low.

Analysts generally agree China’s economy is likely to rebound in the second quarter starting in April, although there is debate about how strong the recovery will be.

Weak demand for Chinese manufactured goods could push the PPI to an even lower level in coming months, said Liu Xuezhi, a senior researcher with the Bank of Communications.

“It will depend on how fast China’s infrastructure construction can progress and if overseas orders can recover once the global pandemic is contained,” he said.

The central government is urging businesses to resume operations and ramping up support, as it seeks to turn the economy around from what is expected to be a contraction in the first quarter.

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