China’s factory inflation hits 17-month low, consumer prices accelerate

A worker walks past rolls of steel at the Chongqing Iron and Steel Factory in Changshou, Chongqing, China August 6, 2018. REUTERS/Damir Sagolj/File Photo

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  • July producer inflation at lowest since February 2021
  • July consumer inflation at a 2-year high
  • PBOC should remain dovish to boost growth

BEIJING, Aug 10 (Reuters) – China’s factory gate inflation hit a 17-month low in July, defying global cost pressures as a slowdown in domestic construction weighed on demand for raw materials, although consumer price increases hit a two-year high with pork supply. tight.

The producer price index (PPI) rose 4.2% year-on-year, the National Bureau of Statistics (NBS) said on Wednesday, following a 6.1% rise in June and analyst forecasts. missing for an increase of 4.8%.

China’s producer price growth has slowed after hitting a 26-year high in October last year, giving policymakers some leeway to stimulate the flagging economy even as central banks elsewhere are trying to dampen runaway inflation with aggressive interest rate hikes.

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While China’s relatively benign inflation is largely due to weak domestic demand, a moderation in global price pressures, such as falling oil prices, also contributed to July’s slowdown.

“Factory gate inflation will remain on a downward path through the year amid further declines in commodity prices, easing supply bottlenecks and a higher comparison,” Zichun Huang, China economist at Capital Economics, said in a research note.

In a sign of slowing momentum, the PPI fell 1.3% month-on-month, its first monthly decline since January, with the biggest declines in the price of metals and petrochemicals.

In annual terms, prices for the coal mining and washing industry increased by 20.7%, slowing by 10.7 percentage points compared to June, while the coal mining industry oil and gas jumped 43.9%, down 10.5 percentage points, according to a separate NBS statement.

Input prices fell in July, China’s official Purchasing Managers’ Index showed last week, due to lower energy and raw material costs and indicating a possible fall in consumer prices. production. Read more

The world’s second-largest economy slowed significantly and narrowly escaped a contraction in the June quarter, weighed down by tight COVID-19 controls, a struggling housing market and cautious consumer sentiment.

The consumer price index (CPI) rose 2.7% from a year earlier, the fastest pace since July 2020, but misses forecasts of a 2.9% gain.

The main driver of consumer prices is food inflation, which rose 6.3% year-on-year, after rising 2.9% in June.

Hog prices, which jumped 20.2% year-on-year, reversing a 6.0% drop in June due to slower production, were behind the broader food spike.

However, core CPI, which excludes volatility in energy and food prices and is a better indicator of core inflation, remained weak, rising only 0.8%, more slower than the 1.0% rise in June.

RESTRAINED DOVES

While the People’s Bank of China (PBOC) is expected to keep monetary settings loose amid sluggish growth, there are limits to its policy easing amid concerns over capital outflows, as the Federal Reserve US is aggressively raising interest rates.

The PBOC will therefore likely rely on more targeted easing to support the recovery, even as consumer inflation tests China’s 3% tolerance threshold.

That means the prospect of a broad-based decline in short-term interest rates is dim, given existing global inflationary pressures and interest rate hikes in other major economies, said Bruce Pang, an economics economist. chef at Jones Lang Lasalle.

“Overall, CPI inflation remains below the PBOC’s target of around 3%, giving it the room to stay accommodative,” HSBC economist Erin Xin said in a statement. a rating.

“With continued uncertainty from COVID-19 clusters as well as weak sentiment in the housing market, the PBOC should still remain dovish.”

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Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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