China factory prices fall at slowest rate in 5 months as recovery continues

Reuters Beijing | Updated on September 09, 2020

China's economy returned to growth in the second quarter of this year, underpinned by government stimulus   -  AFP

The producer price index fell 2% from a year earlier in August

China’s factory gate prices fell at their slowest annual pace in five months in August as the world's second-largest economy and its industries continued to recover from a slump caused by the coronavirus pandemic earlier this year.

Annual producer prices fell for a seventh straight month but at a slower pace, while consumer prices saw more moderate growth due to falling pork price inflation. Core consumer prices however rose month-on-month for the first time since the coronavirus pandemic worsened in China in January.

China's economy returned to growth in the second quarter of this year, underpinned by government stimulus and as the country managed to get the virus broadly under control. Recent indicators have pointed to a sustained recovery.

“Looking through the volatility in food prices, the broader disinflationary impact from the Covid-19 downturn continues to ease,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

The producer price index (PPI) fell 2.0 per cent from a year earlier in August, the National Bureau of Statistics (NBS) said on Wednesday. That was in line with expectations in a Reuters poll, but the decline was more modest than the 2.4 per cent drop in July.

The consumer price index meanwhile rose 2.4 per cent last month from a year earlier, as expected, but slower than a 2.7 per cent annual increase in July, as food price inflation eased, driven by pork prices.

Pork price inflation slowed last month from a higher base a year ago, when prices began to surge in August 2019 as the African swine fever decimated China's pig herd. Pork prices rose 52.6 per cent in August from a year earlier, easing sharply from a 85.7 per cent annual jump in July.

“Looking ahead, headline consumer price inflation probably has further to fall as pork supply continues to recover from last year's African swine fever outbreak,” Evans-Pritchard added.

Huge uncertainty

Core inflation, excluding volatile food and energy prices, rose 0.5 per cent in August from a year earlier, unchanged from July, suggesting domestic demand still remained soft.

On a month-on-month basis, core inflation rose 0.1 per cent in August, the first monthly rise since January, while producer prices rose 0.3 per cent, slowing from 0.4 per cent in July.

“In August, industrial production continued to improve while market demand kept recovering,” said Dong Lijuan, senior statistician with the NBS, in a statement accompanying the data release.

But Nie Wen, economist at Shanghai-based Hwabao Trust, does not expect annual PPI to turn positive by the end of the year.

“(It) would ultimately depend on when the global pandemic will be brought under control. Given China is very likely to see a resurgence of infections during winter, the uncertainty (on the industrial recovery) is still huge.”

Published on September 09, 2020

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