China factory prices falter as inflation soars to 8-yr high
BEIJING: China’s producer prices fell the most in more than three years in October, as the manufacturing sector weakened on declining demand and a knock from the Sino-us tariff war, reinforcing the case for Beijing to keep the stimulus coming.
The producer price index (PPI), seen as a key indicator of corporate profitability, fell 1.6 per cent in October from a year earlier, marking the steepest decline since July 2016, National Bureau of Statistics (NBS) data showed on Saturday. Analysts had tipped a contraction of 1.5 per cent for the PPI.
In contrast, China’s consumer prices rose at their fastest pace in almost eight years, driven mostly by a surge in meat prices. Some analysts say the CPI rise could become a concern for policymakers looking to introduce measures to prop up demand.
However, core inflation — which excludes food and energy prices — pressures remain modest.
The factory deflation was punctuated by falling raw material prices, including in the oil and gas extraction and ferrous metal smelting industries. It aligns with other indicators showing shrinking manufacturing activity in October, with the official Purchasing Managers’
Index (PMI) indicating contraction for a sixth straight month.
Zhao Wei, a macro analyst with Wuhan-based Changjiang Securities, said the drag from the real estate sector, which is suffering from a government crackdown on sales speculation and policy tightening on financing for developers, will also become more pronounced.
“Looking ahead, while a low base from last year will provide some support in the next few months, PPI deflation is likely to continue as overall demand is still under pressure,” said Zhao. “The PPI may continue to be within a negative growth range.”
While Washington and Beijing work on finalising the first part of a phased trade agreement, many analysts are wary of the potential back and forth after the sudden collapse of earlier talks in May. Chinese manufacturers, meanwhile, are expected to face continued pressure from existing tariffs.
More US tariffs against China are set to take effect on December 15, although officials from both China and the United States said this week they have agreed to roll back tariffs on each others’ goods if a “phase one” trade deal is completed.