China’s factory-gate prices fell for a record 32nd month and consumer prices remained subdued last month, raising pressure on policymakers to bolster the world’s second-largest economy as disinflation spreads.
The producer-price index (PPI) dropped 2.2 percent from a year earlier, the National Bureau of Statistics said in Beijing yesterday, compared with the median projection of a 2 percent decline in a survey of analysts by Bloomberg News.
Consumer prices rose 1.6 percent and the rate was unchanged from the prior month and matched economists’ estimates.
China’s economy, burdened by overcapacity and weak domestic demand, is headed for the slowest full-year growth in more than two decades. Lower oil and metals prices are cutting costs at the factory gate, allowing China’s exporters to reduce prices and adding to deflationary pressures globally.
“China’s domestic demand remained soft and disinflationary risks are on the rise on the back of falling global commodity prices,” said Chang Jian (常健), chief China economist at Barclays PLC in Hong Kong. “Subdued inflation offers room for more PBOC [People’s Bank of China] easing, but broad-based monetary easing will more likely to be triggered by disappointing growth numbers, which we will likely see in the coming months.”
Chang said she expects the PPI drop to continue next year.
Purchasing prices of fuels fell 3.8 percent last month from a year earlier, while ferrous metals costs dropped 6.9 percent, bureau data showed. Prices of all nine components dropped.
Oil prices have slumped into a bear market amid speculation of a global glut, slowing drilling at US shale formations. OPEC nations are responding by cutting prices, resisting calls to reduce supply as they compete with the highest US output in three decades.
“The extended drop in the PPI is affected by the prolonged decline of global oil prices and overcapacity in some domestic industries,” Yu Qiumei (余秋梅), a senior statistician at the bureau, said in a statement yesterday.
Eighteen of China’s 31 provinces and municipalities reported a nominal growth rate lower than the price-adjusted level for the first nine months of this year, signaling deflation. China’s import growth moderated to 4.6 percent last month from September’s 7 percent gain, according to data released by China’s General Administration of Customs over the weekend.
“China has entered into a disinflation process with rising deflation risk,” analysts at Australia & New Zealand Banking Group Ltd (ANZ) in Hong Kong led by Liu Li-Gang (劉利剛) wrote in a note yesterday. “This is a significant risk facing China’s economy, which requires China’s policy makers to monitor the situation closely and take actions swiftly.”
The central bank could conduct liquidity injections via different policy instruments more frequently, while fiscal policy will be “proactive,” the ANZ analysts wrote.
The People’s Bank of China, which has refrained from across-the-board interest rate cuts, confirmed liquidity injections into banks in the third quarter in a report last week. It also cut the interest rate it pays lenders for 14-day repurchase agreements in September and last month.
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