China producer price inflation steadies in June but momentum may falter

A woman selecting vegetables at a market in Beijing.
A woman selecting vegetables at a market in Beijing.PHOTO: AFP

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

The producer price index rose 5.5 per cent in June from a year earlier, compared with an estimated 5.5 per cent in a Bloomberg survey, which was also the reading in May. The consumer price index increased 1.5 per cent, versus a forecast of 1.6 per cent, the statistics bureau said on Monday (July 10).

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 that will help them meet targets, moderating price gains in China, the world's largest trading nation, aren't good news.

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

"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," said Rajiv Biswas, Asia-Pacific Chief Economist at IHS Markit in Singapore. "A further slowdown in producer price inflation is likely in coming months."

"It's all about PPI and it's all about how long until PPI is negative year-on-year again," said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. "This month is surely just a holding action in that regard."

"Low inflation allows the central bank to take inflation away from its target list", said Raymond Yeung, greater China chief economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. "It is obvious that 2017 will be another year 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.