China producer prices drop further, inflation stable - RTHK
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China producer prices drop further, inflation stable

2023-06-09 HKT 12:07
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  • China’s consumer price index has risen by 0.2 percent. File photo: Xinhua
    China’s consumer price index has risen by 0.2 percent. File photo: Xinhua
China's factory gate prices fell at the fastest pace in seven years in May and quicker than forecasts, as faltering demand weighed on manufacturing and the fragile economic recovery.

The producer price index (PPI) fell for an eighth consecutive month, down 4.6 percent – the fastest decline since February 2016, National Bureau of Statistics (NBS) data showed on Friday.

Dong Lijuan, a statistician with the NBS, attributed the decline to an overall downward trend in international commodity prices, weak demand in domestic and foreign industrial product markets, and the high comparison base during the same period last year.

Michelle Lam, a Greater China economist from Societe Generale, called the decline "disappointing", adding that it highlighted the need for greater policy support.

"The recovery in the property sector, in particular in the investment phase, has been disappointing. If we look at the iron ore prices, for example, also the construction materials, such as cement and glass, they have been falling pretty quickly in recent months," she told RTHK.

The consumer price index (CPI), meanwhile, rose by 0.2 percent year-on-year after a 0.1 percent rise from the previous month.

Dong attributed the increase mainly to a high base in the corresponding period of 2022.

"In May, the CPI was generally stable," the statistician said.

China's economy grew faster than expected in the first quarter, but recent data showed factory activity contracted and imports fell in May.

Some economists expect the People's Bank of China to cut interest rates or release more liquidity into the financial system. The bank cut lenders' reserve requirements ratio in March.

"Overall, I think there's pretty weak price pressure in China, and that definitely argues for the policymakers to step up easing," Lam said. "If the government continues to see disappointment in the growth momentum, then they need to step up policy support."

She expects the central bank to cut interest rates in the second half of the year.

"There are some concerns about the depreciation pressure of renminbi. Because of that, I think there may still be some chances that the Fed may carry on hiking in their June or July meeting although they are pretty close to the end of their hiking cycle. So I think with that in mind, the second half of the year will open the door for more policy support."

The nation's biggest banks on Thursday said they had lowered interest rates on deposits, providing some relief for the financial sector and wider economy by easing pressure on profit margins and reducing lending costs.

Analysts have been downgrading their forecasts for economic growth for the year amid continued signs of slowing. Beijing has set a GDP growth target of around 5 percent for this year, after missing the goal last year. (Reuters/Xinhua, additional reporting by RTHK)
Last updated: 2023-06-09 HKT 18:00

China producer prices drop further, inflation stable