A New Low in China’s Factory gate Inflation
Consumer prices rose at a faster pace than producer prices in July, mostly due to restricted pork supplies, despite China’s factory-gate inflation easing to a 17-month low.
The National Bureau of Statistics (NBS) stated on Wednesday that the producer pricing index (PPI) grew 4.2% year-on-year, following a 6.1% increase in June and missing analyst expectations for a 4.8% gain.
Even as central banks around the world rush to contain soaring inflation by raising interest rates, China’s inflation rate has decreased from a 26-year peak set in October of last year.
China Economist at Capital Economics Zichun Huang said in a research note that “Factory gate inflation will remain on a downward trajectory throughout the rest of the year amid a further drop in commodity prices, easing supply bottlenecks and a higher base for comparison,”
PPI decreased 1.3% month-on-month, its first monthly decline since January, with the greatest drops in metals and petrochemicals prices, indicating a slowdown in momentum.
An NBS statement stated that coal mining and washing industry prices climbed 20.7% in annual terms, dropping 10.7 percentage points from June, while oil and gas extraction prices rose 43.9%.
Input prices fell in July from June, according to China’s official purchasing managers’ index, indicating that producer prices will eventually fall as a result of lower energy and raw material costs.
COVID-19 regulations, the distressed housing market, and cautious consumer attitude all contributed to slowing the second quarter growth of the world’s second-largest economy.
Although the CPI rose at its quickest rate since July 2020, it fell short of expectations for a 2.9% increase.
Consumer prices grew 6.3% year-on-year in July, up from a 2.9% increase in June. Food inflation was the primary driver of the increase.
Prices of pork, which had fallen 6.0% in June due to a slowdown in production, rose 20.2% year-on-year, fueling the overall food price increase.
There was no change in the core CPI, which eliminates volatile energy and food costs and serves as a better indicator of underlying inflation, gaining just 0.8%.
Economic officials’ discussions have been hampered by the rise in consumer inflation.
According to Bruce Pang, a chief economist at Jones Lang Lasalle, a short-term interest rate drop is unlikely given current global inflationary pressures and interest rate rises in other key economies.