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China Factory Gate Inflation Below Expectations

China Factory Gate Inflation Below ExpectationsChina Factory Gate Inflation Below Expectations

China’s factory price inflation remained steady for the third consecutive month in July, the government said on Wednesday, coming in slightly below expectations as experts warn of a further slowdown in the world’s second-largest economy.

The producer price index rose 5.5% year-on-year, according to the National Bureau of Statistics, the same as the previous two months but missing the 5.6% gain forecast in a Bloomberg News survey, AFP reported.

Julian Evans-Pritchard of Capital Economics warned the producer price gauge’s steadiness “appeared to be almost entirely due to the recent rally in domestic steel prices, which is unlikely to be sustained in our view”.

China’s steel prices surged in July, which has helped lead world steel market prices higher, the China Iron and Steel Industry Association has said.

China’s consumer price index, a main gauge of retail inflation, rose 1.4% year-on-year last month, down from 1.5% in June and also missing Bloomberg’s forecast of 1.5%.

Consumer price inflation has been “generally stable”, NBS analyst Sheng Guoqing said in a statement, adding that high temperatures and heavy rains this summer have supported vegetable and egg prices.

“With policy tightening now weighing on economic activity, underlying inflation has already begun to decline,” Evans-Pritchard said in a research note.

The inflation data came a day after the release of figures showing the rate of growth in China’s exports and imports also slowed significantly in July.

Weaker factory price inflation could start to weigh on profits at China’s large—and often heavily indebted—industrial firms, who have benefited from a strong commodities reflation cycle over the last year.

 

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