BEIJING: China’s consumer inflation hit a 12-month high in August, driven by rising pork costs, authorities said Thursday, but factory gate prices fell at their fastest in nearly six years in a mixed picture for the world’s second-largest economy.
The diverging figures, which point to an oversupply from factories—underline the task facing China’s leaders as they try to soothe fears about a growth slowdown that have rocked global financial markets in recent weeks.
Moderate inflation can be a boon to consumption as it pushes consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt economic expansion.
The consumer price index (CPI), a main gauge of inflation, rose 2.0 percent year-on-year, the National Bureau of Statistics (NBS) said, higher than July’s 1.6 percent and the strongest since last August. A survey of economists by Bloomberg News saw a median estimate of 1.8 percent.
Food prices were again the key factor for inflation, NBS analyst Yu Qiumei said in a statement.
Prices of pork soared 19.6 percen—after farmers reduced their headcounts in recent months — while vegetables surged 15.9 percent, contributing to more than half the CPI increase, Yu said.
But the NBS said the producer price index—a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI—declined 5.9 percent in August.
The result was the worst since a 7.0 percent fall in September 2009 and marked the 42nd consecutive monthly drop.
Prices for factory-produced goods have fallen as growth has slowed and overseas demand slackened while the key property market has also weakened, hitting demand for construction materials. Plants—many of them state-owned—are also loath to drastically cut employees, leading to continued production even when demand is weak.
“We are quite concerned by deepening PPI deflation,” Nomura economists said in a research note.
“Month-on-month deflation has worsened in the third quarter, which is consistent with weaker growth momentum. This is also why the government will use its fiscal stimulus to bolster the economy, primarily by boosting infrastructure investment.”
New growth policies
China’s finance ministry on Tuesday said it will adopt “stronger” fiscal policies to support the Asian giant and key driver of global growth, with accelerating major construction projects one of its priorities.
The slowdown in growth and declines in commodity prices have helped keep China’s consumer inflation in check, with some economists even voicing concerns about possible deflation.
CPI touched 0.8 percent in January—its lowest in more than five years.
“Looking ahead, we expect both measures of inflation to rebound over the coming quarters,” Julian Evans-Pritchard, China economist at Capital Economics, said in a note.
He added that steep falls in pig numbers will keep food prices high, while the declines in global commodity prices late last year mean both inflation measures should strengthen soon on weaker bases for comparison, “which ought to help assuage any lingering concerns over deflation”.
Growth in China’s gross domestic product (GDP) hit a 24-year low last year, expanding 7.3 percent amid a steady slowdown from years of double-digit expansions. GDP has slowed further this year, expanding 7.0 percent in each of the first two quarters.
Premier Li Keqiang said on Wednesday that the government is capable of maintaining high economic growth, trying to stem fears about slowing economic growth that have sent global financial markets on a rollercoaster ride recently.
The inflation survey collects prices from more than 63,000 outlets including grocery stores, supermarkets, shopping malls and agricultural trade markets across 500 cities and counties in the country, according to the NBS.