Weak­en­ing price growth sig­nals mild in­fla­tion

China Daily (Latin America Weekly) - - Front Page - By ZHOU LANXU and XIN ZHIMING

China’s con­sumer price in­dex, a pri­mary barom­e­ter of in­fla­tion, rose by 2.2 per­cent year-on-year in Novem­ber, down from 2.5 per­cent in Oc­to­ber, the Na­tional Bu­reau of Statis­tics said on Sun­day.

China’s pro­ducer price in­dex, which mea­sures fac­tory-gate prices, was up 2.7 per­cent year-on-year last month, with the in­crease nar­row­ing for the fifth con­sec­u­tive month.

The slower growth of prices last month may sig­nal mild in­fla­tion in the com­ing months, which will cre­ate con­di­tions for pol­i­cy­mak­ers to moder­ately loosen mon­e­tary pol­icy to en­sure stable eco­nomic growth, an­a­lysts said.

In month-on-month terms, the CPI fell by 0.3 per­cent in Novem­ber, com­pared with a 0.2 per­cent growth in Oc­to­ber. The fall­ing prices were due to suf­fi­cient sup­ply of veg­eta­bles and slack­ened de­mand for pork, as well as non­food fac­tors such as weak in­ter­na­tional oil prices and the Novem­ber 11th on­line shop­ping tra­di­tion, also known as Sin­gles Day, which weighed down prices due to sales pro­mo­tions, an­a­lysts said.

The PPI edged down 0.2 per­cent on a month-on-month ba­sis in Novem­ber com­pared with a 0.4 per­cent growth recorded the pre­vi­ous month. The de­cline was mainly due to an eas­ing of en­vi­ron­men­tal pro­tec­tions which re­duced pro­duc­tion costs, di­min­ished de­mand for some prod­ucts amid colder weather and fall­ing in­ter­na­tional oil prices.

The soft­en­ing of both the CPI and the PPI in Novem­ber in­di­cates that in­fla­tion may con­tinue to weaken mildly in the com­ing months, leav­ing room for pol­i­cy­mak­ers to moder­ately loosen mon­e­tary pol­icy to help sta­bi­lize China’s eco­nomic growth, said Li He, a Bank of China an­a­lyst, who fore­cast that full-year growth for both the CPI and the PPI could be 2.2 per­cent and 3.6 per­cent re­spec­tively.

“In the first half of 2019, China’s CPI may con­tinue to be weaker than ex­pected due to China’s pos­si­ble in­crease of agri­cul­tural prod­uct im­ports from the United States as they have agreed to tem­po­rar­ily halt their trade con­fronta­tion. This, to­gether with the global rice har­vest, will help drag down do­mes­tic agri­cul­tural prod­uct prices,” Li said. Prices of in­ter­na­tional bulk com­modi­ties are also ex­pected to fall, which will help China main­tain stable prices, he said.

Zhang Zhi­wei, chief China econ­o­mist at Deutsche Bank, said China’s in­fla­tion and eco­nomic growth may ease slightly, but should re­main stable next year.

“The over­all eco­nomic sit­u­a­tion, as we fore­cast, will be largely stable,” he said, adding that the CPI is ex­pected to fall be­tween 2 per­cent and 3 per­cent in 2019, sim­i­lar to this year’s per­for­mance.

Some Chi­nese ex­porters have rushed to ex­port amid trade ten­sions with the US, and in­fras­truc­ture in­vest­ment has picked up due to sup­port from proac­tive fis­cal pol­icy — fac­tors that help sta­bi­lize growth de­spite the eas­ing of the real es­tate sec­tor, he said.

In the short term, even as Chi­naUS trade ten­sions are ex­pected to con­tinue next year, Zhang said China still has room for in­creas­ing debt is­suance to off­set the im­pact from the trade con­flict as the ra­tio of gov­ern­ment debt-to-GDP re­mains at ap­pro­pri­ate lev­els. “Although growth may ease next year, China still has room to make sup­port­ive poli­cies to sta­bi­lize its econ­omy.”

He also sug­gested that China ex­pand eco­nomic open­ing-up, es­pe­cially for the ser­vices in­dus­try, and fur­ther im­prove the busi­ness en­vi­ron­ment in or­der to boost the econ­omy.

Yao Jingyuan, for­mer chief econ­o­mist at the NBS, said China needs to fur­ther re­struc­ture its econ­omy next year to seek high-qual­ity de­vel­op­ment. “We have made some head­way in eco­nomic re­struc­tur­ing this year and we should fur­ther carry it out next year,” he said.

Con­tact the writ­ers at [email protected]­nadaily.com.cn

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