China factory prices post sharpest fall in 3 years, adding to economic gloom

Some analysts expect China's overall economic growth rate to slip below the government's 6.0-6.5 per cent target range this year.
Some analysts expect China's overall economic growth rate to slip below the government's 6.0-6.5 per cent target range this year.PHOTO: REUTERS

BEIJING • China's factory prices declined at the fastest pace in more than three years last month, reinforcing the case for Beijing to unveil further stimulus measures as manufacturing cools on weak demand and trade pressures from the United States.

September's producer price index (PPI), considered a key barometer for corporate profitability, fell 1.2 per cent year on year, data from the National Bureau of Statistics showed yesterday. It marked the steepest factory price decline since July 2016 but matched forecasts in a Reuters survey of analysts.

The grim outlook is unlikely to change even as tensions in the year-long trade war between Beijing and Washington have eased somewhat. US President Donald Trump last Friday said the two sides had reached agreement on the first phase of a deal, and suspended a tariff hike, but officials said much still needs to be done.

Some analysts expect China's overall economic growth to slip below the government's 6 per cent to 6.5 per cent target range this year.

Trade data on Monday showed contractions in both exports and imports as US tariffs implemented on Sept 1 took effect, underscoring the continued impact of the bilateral dispute.

China has taken a cautious approach in dealing with the slowing economy. Stimulus to date has largely avoided dramatic increases in government spending and the central bank has also mainly used the reserve requirement ratio for banks, instead of sweeping interest rate cuts.

China's central bank governor Yi Gang said late last month that there was no urgent need to implement large interest rate cuts following Beijing's reiteration that it would not use "flood-like" stimulus measures.

Analysts said they expect greater stimulus measures at the end of the month, however, when China's Politburo - the top decision-making political body - is expected to meet.

  • 1.2% 

    Drop in September's producer price index year on year. The index is considered a key barometer for corporate profitability.

    11.2%

    Rise in the food price index in September, from a year earlier, compared with 10 per cent in the previous month.

"Since there is very limited policy autonomy at ministries, local governments and state-owned enterprises, the policy decision pass-through has to come from the above," said analysts last week in a note from Bank of America Merrill Lynch.

The People's Bank of China cut a reserve ratio for banks last month, freeing up US$126 billion (S$173 billion) for loans.

PORK PRICES CONTINUE TO SOAR

Meanwhile, data released by the National Bureau of Statistics yesterday showed China's consumer price index (CPI) rose 3 per cent from a year earlier, higher than 2.9 per cent tipped by analysts and marking the fastest increase since October 2013, when it rose 3.2 per cent.

While last month's CPI still remained within China's official target of around 3 per cent - and core CPI has remained relatively stable, growing 1.5 per cent - consumer inflation, in particular food prices, continued to surge.

Food prices have soared, driven mainly by rising pork prices as African swine fever diminishes hog supplies. Pork prices jumped last month, with a year-on-year growth of 69.3 per cent, compared with 46.7 per cent in August.

The food price index last month rose 11.2 per cent from a year earlier, compared with 10 per cent in the previous month.

China, which is battling a devastating case of African swine fever, has implemented a series of policies to try to replenish its herds, including flying in 900 breeding pigs from Denmark.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 16, 2019, with the headline 'China factory prices post sharpest fall in 3 years, adding to economic gloom'. Print Edition | Subscribe