China’s factory-gate inflation last month eased to its slowest pace in six months, while consumer price growth also softened amid weakening property sector demand, new COVID-19 curbs and government efforts to rein in surging materials costs.
The producer price index (PPI) increased 9.1 percent from a year earlier, the Chinese National Bureau of Statistics said in a statement yesterday.
That was slower than the 9.5 percent growth tipped by a Reuters poll and a 10.3 percent gain in December last year. It was the weakest pace since July.
Photo: EPA-EFE
While producer prices in the world’s second-largest economy remain elevated thanks to critical supply issues at home and abroad, China’s relatively benign consumer inflation contrasts with cost pressures seen in most other economies.
Analysts believe cooling inflation could provide room for the People’s Bank of China (PBOC) to ease policy to support the slowing economy, even as major central banks elsewhere tighten policy.
“Inflation concerns are unlikely to hold back the [PBOC] from more policy loosening measures,” said Sheana Yue (余惠悅), China economist at Capital Economics.
China’s consumer price index (CPI) last month inched up 0.9 percent from a year earlier. Economists in a Reuters poll had expected a 1 percent rise following a 1.5 percent uptick in December.
“Lower inflation reflects the weak domestic demand,” Pinpoint Asset Management Ltd (保銀私募基金管理) chief economist Zhang Zhiwei (張智威) said. “Macro policies have turned more supportive, but it takes time for the impact to be transmitted to the economy.”
The Chinese economy, particularly its vast manufacturing sector, has struggled with elevated production costs due to high global energy prices.
Last month, coal mining and washing prices surged 51.3 percent year-on-year, while oil and gas extraction prices jumped 38.2 percent.
China’s state planner earlier this month said that global inflation is likely to persist for some time, but expressed confidence in the country’s ability to cope with abnormal price fluctuations.
The Chinese National Development and Reform Commission said it expects producer price inflation to slow further this year while consumer price inflation picks up.
The PBOC has cut interest rates and pumped cash into the financial system to lower borrowing costs, with more easing steps expected.
Yue expects further policy rate cuts before the middle of the year.
The scope to ease is a rare luxury enjoyed by China, in contrast with developed central banks, which have either begun increasing interest rates or are widely expected to this year.
At the same time, policymakers are wary of loosening credit conditions too much and too fast, which could reignite speculation-driven spikes in property prices.
The property sector has cooled because of restrictions on borrowing by developers, as well as increasingly wary buyers.
“On interest rate cuts, policymakers do not want to undo all the results they achieved last year in the property market,” Hwabao Trust Co (華寶信託) chief economist Nie Wen (聶文) said.
“They finally managed to curb the fast-rising [property] prices, so any cuts to interest rates will be structural and aimed at supporting the real economy, rather than further stimulating the property market,” Nie said.
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