(Bloomberg) -- China’s factory inflation slowed for a third month, amid higher year-ago base comparisons, as the consumer price index softened.
Key Points
- The producer price index rose 4.3 percent in January from a year earlier
- That matches projected 4.3 percent rise in a Bloomberg survey and 4.9 percent in December
- The consumer price index climbed 1.5 percent, the statistics bureau said Friday
Big Picture
Continued moderation in China’s factory inflation may signal waning support from the world’s second largest economy for the global reflation trend, as concerns over price gains elsewhere contribute to market turbulence. Domestically, while modest consumer price inflation helps maintain spending power, slowing PPI crimps industrial profits and complicates the nation’s effort to pay down corporate debt.
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Economist Takeaways
"China’s PPI will be relatively stable this year. It will neither fall sharply, as the economy’s growth momentum still extends, nor will it surge a lot as the high base last year reduces that possibility," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. "Therefore, China’s PPI won’t be a drag on global reflation, and it also won’t be the focus. The focus would be on the wage growth in the U.S. and Europe. China’s PPI exporting inflation pressure is more a story of last year."
"The moderation in PPI is mild and was mostly a result of high-base effects, so I think the stable factory inflation suggests China’s economy is steady and that’s good news for the global economic recovery," said Banny Lam, head of research at CEB International in Hong Kong. "The PPI will remain around 3 to 4 percent in the coming two months due to the high-base factor, and will climb in April and May on rising commodity prices."
"PPI will face slight downward pressure this year," weighing more on the upstream sectors than downstream sectors, said Iris Pang, an economist at ING Group NV in Hong Kong. "Chances are small for China to export inflationary pressures in the future as China will need to import, not export, after cutting excessive capacity," she said, adding that January’s trade data shows China has kept buying raw materials despite resurgent prices.
Details
- Mining, raw materials, and manufacturing PPI all slowed in January
- Food and non-food CPI both moderated in January
