China’s factory deflation last month eased back as the economic recovery continued, while consumer inflation ticked up.
The decline in the producer price index (PPI) last month narrowed to 3 percent from May’s 3.7 percent, China’s National Bureau of Statistics said yesterday.
The consumer price index (CPI) rose 2.5 percent year-on-year following a 2.4 percent gain the previous month.
Photo: AFP
The statistics bureau earlier published statements dated last year which were then withdrawn.
The improvement in factory gate deflation indicates the recovery continues to make slow progress, while the rise in consumer inflation is mainly due to a rebound in food prices rather than stronger overall demand.
With the outlook for exports grim due to the pandemic raging in other nations, policymakers would continue to face pressure to support the economy
“The better-than-expected PPI showed that deflationary risks at factory gates might not be so pressing, while the decline in core CPI underscores that the recovery in demand isn’t so ideal,” said Betty Wang, senior economist at Australia & New Zealand Banking Group in Hong Kong. “Going forward, policies will remain supportive, but they’ll likely be more targeted rather than blanket.”
Narrowing PPI deflation last month is because “international commodity prices picked up, domestic manufacturing steadily recovered and market demand continued to improve,” the bureau said in a statement accompanying the data.
Core inflation, which removes the more volatile food and energy prices, slowed to 0.9 percent.
The slowdown in factory deflation might provide support for companies’ profits, which are down more than 19 percent in the first five months of the year from a year earlier.
A variety of temporary factors last month pushed up food prices, with pork prices rising almost 82 percent due to slower hog production, strict epidemic prevention requirements and falling imports, the bureau said.
Pork is a key element in the country’s CPI basket and wholesale prices began rising again last month.
Serious floods have occurred in many places in China and a cluster of COVID-19 cases at Beijing’s biggest wholesale food market caused a temporary shortage of vegetables in some areas, the bureau said.
The official gauge of manufacturing activity climbed last month, providing more evidence of a gradual recovery from the historic contraction in the first quarter. The earliest indicators for the economy also pointed in the same direction.
“The floods could increase vegetable prices somewhat, but the impact on CPI inflation is likely to be transitory,” said Michelle Lam, greater China economist at Societe Generale SA in Hong Kong.
“Headline CPI should moderate to below 2 percent in the second half” of the year as an improvement in pork supply should lead to normalizing pork prices, she said.
“For policymakers, the challenge is how to support the recovery of private demand which has lagged so far, and to prevent bubbles, be it in housing, stock market and commodity prices,” she said.
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