China's producer price gains steady as demand still robust

Workers at Shandong Iron and Steel Group's plant in Jinan, Shandong province. Even as inflation steadies on weaker commodity prices, regulatory curbs on excessive borrowing may erode momentum later this year.
Workers at Shandong Iron and Steel Group's plant in Jinan, Shandong province. Even as inflation steadies on weaker commodity prices, regulatory curbs on excessive borrowing may erode momentum later this year.PHOTO: REUTERS

BEIJING • China's producer price gains held up, signalling that demand in the world's second-largest economy could remain robust even in the face of regulatory curbs.

The producer price index (PPI) rose 5.5 per cent in June from a year ago, compared with an estimated 5.5 per cent in a Bloomberg survey, which was also the reading in May.

The consumer price index (CPI) increased 1.5 per cent, versus a forecast of 1.6 per cent, the statistics bureau said yesterday.

As inflation steadies on weaker commodity prices, regulators' moves to curb excessive borrowing may erode momentum later this year. Signs of faltering demand for raw materials could become more tangible as strictures on real estate construction slow output.

For global central bankers hoping for an inflation bump to help them meet targets, a moderation in price gains in China, the world's largest trading nation, is not good news.

The data shows "yet another sign that inflation remains dormant in the world economy, despite pretty decent growth", said Mr Rob Subbaraman, chief economist for Asia ex-Japan at Nomura Holdings.

Mr Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, said: "Producer price inflation has already declined from a rate of 7.8 per cent year on year in February to 5.5 per cent year on year by June as global raw materials prices have moderated. A further slowdown... is likely in coming months."

Mr Michael Every, head of financial markets research at Rabobank Group in Hong Kong, said: "It's all about PPI and it's all about how long until PPI is negative year on year again."

Mr Raymond Yeung, greater China chief economist at Australia and New Zealand Banking Group in Hong Kong, said: "Low inflation allows the central bank to take inflation away from its target list. It is obvious that 2017 will be another year of the actual CPI undershooting the official target of 3 per cent."

Producer prices in mining moderated to 18.3 per cent from 22.7 per cent in May. Manufacturing price gains picked up to 5.4 per cent from 4.6 per cent in May.

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A version of this article appeared in the print edition of The Straits Times on July 11, 2017, with the headline 'China's producer price gains steady as demand still robust'. Print Edition | Subscribe