China’s producer price inflation cooled for the first time in seven months last month as iron ore and coal prices tumbled, pressured by fears that Chinese steel production is outweighing demand and threatening a glut of the metal later this year.
A renaissance in China’s steel industry has been a major driver of the world’s second-largest economy in the past few quarters, helping to generate the strongest profit growth in years and adding to a reflationary pulse being felt across the global manufacturing sector.
However, after cranking out as much metal as possible in recent months, Chinese steel mills are now starting to cut prices, threatening to snuff out a bull market that had pushed prices of some steel construction products to their highest since 2014.
China’s producer price index (PPI) last month rose 7.6 percent year-on-year, still at an elevated pace, but in line with analysts’ expectations and easing from a gain of 7.8 percent in February, which was a nine-year high, the Chinese National Bureau of Statistics said yesterday.
Economists polled by Reuters had forecast a softer reading as a torrid rally in China’s commodity markets showed signs of correcting and on expectations that measures to cool the country’s overheated housing market would eventually slow demand for steel and other building materials.
On a month-on-month basis, the PPI rose just 0.3 percent, the smallest increase since September last year and half the pace posted in February.
China’s consumer price inflation edged up to 0.9 percent year-on-year, slightly softer than expected and compared with 0.8 percent in February.
Analysts polled by Reuters had predicted last month’s consumer inflation would edge up to 1 percent, but remain well within the central bank’s comfort zone.
Still-modest consumer inflation and moderating producer prices would give policymakers room to continue with a gradual pace of monetary policy tightening as they try to contain risks from years of debt-fueled stimulus without crimping economic growth.
Consumer inflation picked up last month as costs for healthcare services, housing, transportation and communication surged, suggesting stronger demand from an increasingly wealthy and rapidly aging population and that stronger producer inflation in the past months might have started passing through to downstream consumers.
Food prices last month fell by 4.4 percent after a 4.3 percent drop in February.
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