The pace of Chinese inflation picked up last month, but producer prices continued to slide, underscoring the pressure on profit margins at Chinese companies and adding urgency to central Chinese government policymakers’ efforts to find new ways to support growth.
The producer price index (PPI) declined 4.8 percent last month, the Chinese National Bureau of Statistics said yesterday — the most negative reading posted since Oct 2009 — extending a long-running factory deflation cycle that began in 2012 to nearly three years.
Economists and policymakers worry that the risk of deflation is rising for the world’s No. 2 economy, as drag from a property market downturn and widespread factory overcapacity is compounded by an uncertain global outlook and soft commodity prices.
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China’s statistics bureau attributed the 1.4 percent rise in consumer prices to higher costs for vegetables and fruit, while the decline in PPI — which analysts expected to come in at minus-4.3 percent — was blamed on sliding prices for global commodities, which have undermined industrial profits.
“February’s seasonal pickup in food inflation will likely prove short-lived, and we still expect inflation to fall back below 1 percent in coming months,” Julian Evans-Pritchard of Capital Economics in Singapore wrote.
However, some economists questioned the significance of the price rise, saying it was disappointing in the context of the Lunar New Year holiday, and highlighted that there was no significant increase in the price of pork, which usually rises around the week-long festival.
Annual changes in China’s consumer prices will remain positive in the future, the Shanghai Securities News yesterday quoted People’s Bank of China Deputy Governor Yi Gang (易綱) as saying, while economists said the structure of such inflation is changing, showing rising costs for services and healthcare, instead of residential inflation, which slowed to 0.6 percent.
“We continue to expect inflation to remain relatively low and still see disinflationary pressures in the economy,” Nomura economists wrote in a research note after the news. “To offset headwinds to economic growth, we expect monetary policy to be loosened further.”
The question is how long it will take for easing measures to take effect. The issue is becoming more pressing because unemployment, which has remained low, is seen as coming under further pressure, a government official said yesterday.
Some economists say many jobs are artificial, with factory workers being put on half-pay or no pay, or migrated to low-end service sector jobs by local officials to avoid social unrest from layoffs and political fallout from high unemployment.
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